Kris Safarova  01:33

Welcome to the Strategy Skills podcast. I’m your host, Kris Safarova, and this show is brought to you by our firm, FIRMSconsulting, the team behind StrategyTraining.com and if you want to become stronger strategist and leader, we have built StrategyTraining.com to be your go-to platform. And we offer advanced training used by clients at major companies and consulting firms. And you can get started by getting one of our free resources. You can get the Overall Approach Used in Well-Managed Strategy Studies. It can be found at firmsconsulting.com/overallapproach. You can also get McKinsey and BCG-winning resume example, which is a resume that got offers from both of those firms. And you can get it at firmsconsulting.com/resumePDF. And you can also get a copy of one of our books. It’s called Nine Leaders in Action. And you can get it at firmsconsulting.com/gift. And today we have a very special guest, Sarah Keohane Williamson, such a beautiful name, Sarah, welcome and just a few words. Sara is the CEO of FCLT Global, which is a non-profit research organization whose mission is to focus capital on the long term to support a sustainable and prosperous economy. Sarah was a Senior Engagement Manager at McKinsey and Company, worked at the US Department of State, was mergers and acquisitions investment banker for Goldman Sachs, and her MBA, with Distinction from Harvard Business Review, and also an author of the upcoming book, The CEO’s Guide to the Investment Galaxy, on how executives can navigate to these markets to build great companies. Sarah, so great to have you with us.

Sarah Keohane Williamson  03:21

Kris, thank you so much for having me today. I really appreciate it.

Kris Safarova  03:24

So you graduated from Harvard with distinction. I also graduated with distinction, so I have a sense of what it takes. But beyond the academics, what was the most important idea or experience you walked away with? And maybe you could share with us one related to something you learned about business, and then one related to something you learned for you personally.

Sarah Keohane Williamson  03:46

So I guess I would say that I grew up in a family of academics. Nobody in my family has been in business, and so I went to college, I studied economics, and then I went to Wall Street, as you mentioned, I was a mergers and acquisition analyst at Goldman Sachs at the time. It was actually quite a small firm, believe it or not, and it was the 80s on Wall Street, so you probably know what that means. And it was a it was a tough place, but I learned a huge amount because I worked with people who were very driven, had very high expectations, pushed me hard. And so I think that having that early days there in New York, and then moved to London, where it was a very, very new and small place at the time, where the lessons I learned there were to sort of roll with the punches, frankly. And there were some there were there were some punches. There were markets that went up and down. There were challenging deals, issues, people. But it gave me a really good sense of, sort of how, how that world works and so that that, and it also as. Particularly as a young woman at the time, gave me a good sense of how to, how to sort of survive in that, in that a little bit rough and tumble world. So I learned that there, and I took that with me to Harvard Business School. But then I also, as you mentioned before, business school, worked for the State Department, which was the US State Department, which was really, of course, about diplomacy, about global about getting along with others, about trying to understand other people’s perspectives. And so I think that the combination of those two things taught me a lot. And then I went to business school and learned a lot more about business there.

Kris Safarova  05:35

When you started your career, how did you saw your path unfolding? And what were some of the key defining moments that nudged you in slightly different direction, or maybe not slightly?

Sarah Keohane Williamson  05:50

Well, I so as a I didn’t know much about business when I went into it, but I grew up in a small town and grew up without having, you know, a lot of ability to travel around the world. Didn’t, didn’t have much money at the time, and so I will always remember this vision I had when I was, I don’t know, maybe 11 or 12 years old, riding along on a bicycle and realizing that I wanted to be an international banker. And I didn’t know really what that was, but I knew international meant travel, which I wanted to do get out of the small town I was in. I figured that banks had money, which I didn’t have any of, so I thought that would be a good thing. And so somehow I had this idea that I wouldn’t be an international banker. Now I’m not an international banker, but my career was not that different than that. So I did investment banking globally. State Department, as I mentioned, were McKinsey, and then I spent most of my career at Wellington management, which is a large institutional investment management firm, spending my time around the world. And so that early nudge of an idea that markets were interesting, that global was interesting, is something that I carry with me today into focusing fclt global, which is about focusing capital on the long term globally. So those were it was the germ of idea that really wasn’t very practical, that sort of developed into something a bit more practical over the years. But if you’d asked me, you know, the number of years ago, what I would be doing today. I wouldn’t have had I wouldn’t tell you that. I wouldn’t give you the right answer. Let’s put it that way.

Kris Safarova  07:26

And most driven, very successful people would not be able to because, as they continue with their career, also what they see they can do and how they can contribute expands, because they expand themselves as professionals and individuals. So I want to spend a little bit of time on each area of your career milestone. So to say so when you were at Harvard, did you feel that you belong? Or, conversely, maybe you realize you absolutely did not, and how did that shape the way you lead today?

Sarah Keohane Williamson  08:00

So when I was at when I was at Harvard Business School, there were not that many women. It was maybe 20% maybe 25% women. So there were women and where there weren’t a few, but we were still pretty much in the earlier stages of having a significant presence there. Now I had come from Wall Street, where there were virtually no women. When I joined Goldman Sachs, there were no women partners, for example. And so that part of it, I suppose, should have made me feel like I didn’t belong, but actually felt sort of typical to me. I think that I felt like I belonged, because Harvard school was a place where everybody had to talk and everybody had to listen to each other. But I learned an awful lot from my classmates who maybe had run a factory or had been, you know, in a family business, or had come from a different country. So I think the reason I felt I felt like I belonged, because it was a place that, even at that time, was seeking different points of view, and that part of the whole method of learning is to hear the perspective of somebody who’s maybe had a very different background. For example, we had a couple of military guys in my section. Their style of leadership, their experiences were really different from mine, but I still remember some of the things they said all those years ago.

Kris Safarova  09:36

Are there specific things, maybe one or two, that you feel comfortable sharing?

Sarah Keohane Williamson  09:41

You know, I think I mean just to, just to pick on one of them, you know, there, there was a lot of analyze things. And, you know, think about all these angles. And I remember one guy said, if you want to know what’s going on, open the door, walk out and talk to the people. And I’m like, yeah, actually, that’s what you need. To do. So I think that there was a bit of that, sometimes theoretical versus super practical, that that, to me, has sort of defined what I’ve tried to do, which is to be, you know, research driven, academic in many ways, but always super practical, not ivory towerish in any way.

Kris Safarova  10:19

And I think that phrase is something many of our listeners needed to hear right now, because things are changing so fast, and for leaders, sometimes it’s confusing what’s happening, and they’re spending a lot of time analyzing data, but they also need to walk out the door and talk to people. So that is one of the ways that you probably changed a little bit as a leader. Do you feel that there were other ways that you changed as a leader, if you compare yourself the way you entered Harvard Business School and how you were when you left?

Sarah Keohane Williamson  10:48

So I would say that throughout a career, what the transition people go through is from answering questions to asking questions. So if early in your career, the question is always, well, what’s the right answer? What’s the number, what’s the you know, what’s the analysis say? And you have to be able to answer the question, you know, what is that? Where does the data lead you? What does this tell you? But then, as you go through a career, essentially what happens is you start formulating the question and thinking about what is the most important question. And then, as you go further in your career, and you have teams who are doing the work, doing the real work, and answering those questions, it’s, how do you make sure you’re actually working on the issue that matters? And and those. And the question that matters changes over time. So at least for me, it, you know, early on, it was, is this deal going to happen? Why is it going to happen? Is it going to happen, you know, and then at McKinsey was much more about, what’s the strategy? Does this make sense? Will this work? Will it not work? You know, at Wellington, it was much more about, you know, where are markets going? What’s happening in the world, and what I’m doing now is sort of, why, why does it all, why does it all matter? And, and, and how can we make it matter and make more impact on savers and communities over time? So the the question changes as you go through and the probably percent of time that you’re answering versus asking changes, I think, as you go through a career.

Kris Safarova  12:25

And the last question on Harvard, how do you feel it prepared you and did not prepare you for the leadership challenges you had to face later on?

Sarah Keohane Williamson  12:34

Yeah. So I think the way that it did prepare me is that it built me a network of people that I can ask questions to. So today, when I don’t know what I’m doing, I often think, Huh, who do I know that knows something about this? Let me give them a call. So for I’ll just give you a simple example, one of we’re launching this book that we’ll talk about in a bit, in a minute. And I’ve never written a book before. I’ve never launched a book before, but one of my classmates had, and knows people who have done that, and so I called him up and said, What? How does this work? Like? What? How does this what do you do? And and I got a sort of an expert lesson on, well, you can talk to so and so and so and so so that I think really prepared me well for I think it prepares people about how to think and ask questions and solve problems. I think the what it what it doesn’t always prepare people for, is it can’t prepare people for the events that will happen over, you know, in markets or lives, or whatever it might be. And so the those who have a false sense that they you know, they’re prepared for everything, and they know they know how to handle what will come sometimes get a get a rude awakening, because they don’t know what’s going to come, right? They don’t know what’s going to come next?

Kris Safarova  14:01

Goldman Sachs. Maybe you could share with us one or two key lessons from that period of your life?

Sarah Keohane Williamson  14:08

Yeah. So first of all, I was very young. I went to Wall Street when I was 20 years old. For various reasons. I graduated from college. I graduated from college when I was 20. So. So just envision a 20 year old young woman who on Wall Street in the 80s who doesn’t really know anything. So that’s kind of where I started, and I think so the biggest lesson that I sort of learned was I could walk into a room where I sort of frankly, didn’t have any right to be and if I had done my homework, and I could read the room well enough. I could add, I could survive. I could add some value. I could I could be helpful. So I think that the that was the biggest lesson. And so, you know, I didn’t have experience, I didn’t have connections, I didn’t have I didn’t have anything the. And so. So I think that gave me a lot of confidence over time, to be able to walk into rooms with that I didn’t really have any right to be in. So that was a real lesson for me. I think the other lesson was really just about clients, which was trying to understand, I think one of the things I learned, you know, as a young investment banker, particularly doing mergers, is, yeah, a lot of it has to do with the numbers and the and the dollars and cents, but a lot of it has to do with the ambitions of the CEOs or the board members or whoever is involved in a deal. And if you can understand the people and where they’re coming from and what they care about, and are they what are they trying to build? Are they trying to build a great business? Are they trying to build a legacy? Is it about ego? Then you would, you’d have a lot more sense of how to get a get a deal done. And again, I learned for I was very lucky to work for a lot of very smart and terrific people who I have a lot of respect for, and they pushed me hard.

Kris Safarova  16:07

Sarah, and was there a moment at Goldman Sachs that tested your confidence or resilience where you really had to step up when it was much easier to just step back?

Sarah Keohane Williamson  16:18

So I grew up in the South. I was from a very polite family. I was not used to getting yelled at and or sworn at or anything like that. Like that was not my upbringing. And I think people were, you know, tough. So just one silly example, perhaps, or funny one, but it sticks in my head, which was, I was in London. And this, for those you know, younger listeners, this will sound very funny, but we had basically a mainframe computer that was connected to New York by a cable. Okay, so we there, that was it, and some ship hit the cable or something. Thing went down, so it wouldn’t work, so that all the computers in London were down. And I remember talking to one of the senior partners on the phone, and here I am saying, Well, you know, our computers are down. I can’t do this analysis, because when I have a computer and he just yelled at me, and he said, Have you got a pencil? Have you got some paper? Do it by hand? And he hung up the phone, and I stayed up all night. I did it by hand. I did it with a pencil and paper and a calculator. And that was a good lesson for me, because, first of all, I could do it. Secondly, first of all, I got yelled at because I was being, you know, I hadn’t come up with a solution myself. I was being. I was whining that, you know, the computer was down. You know, I got I got yelled at, but then I figured out sort of how to get it done. And I think that gave me confidence that you kind of figure it out, even if, even if you didn’t have the right tool at the or support or something at the right time.

Kris Safarova  18:00

This story made me think about a funny potential situation that may happen quite soon in the world that we live in, where someone would be told, you need to write a report. And they will say, “ChatGPT is down. I cannot write it.” And they’ll say, “You know what? We used to write it by hand, and we did a pretty good job. I mean, you have a computer, go type it.”

Sarah Keohane Williamson  18:20

Yeah, that’s true. I’m sure, I’m sure every, every generation has the tools that they rely on that the previous generation didn’t rely on. So, you know, I would be, you know, hard pressed to fix the engine of a car, but I’m sure, you know, my grandfather could have fixed the engine of a car without, you know, any modern tools. So it’s just that’s just part of the way it is. Yeah, yes.

Kris Safarova  18:43

Department of State. And you have such an incredible career, such an interesting right? We are taking, and I know we cannot give justice to any of those periods of your life, but I’m grateful we have an opportunity to at least touch on it a little bit. So you spent time in public service at the State Department, and that is quite a pivot from banking. What drew you to government and what did it maybe open up in you that the private sector hadn’t?

Sarah Keohane Williamson  19:09

Well, as I mentioned, I was young when I graduated from college for a variety of reasons, and so I had been at Goldman Sachs. I thought I would just go to business school and maybe return investment banking, I didn’t know, but I’d gotten into business school, but I was because I was young, I thought I had time, and what, what people call a gap year. Now, I thought, oh, it’d be fun to take a gap year. But so I went and talked to John Whitehead, who was at the time, the CO chairman of Goldman Sachs, and he was going to Washington to be the Deputy Secretary of State. And so he offered me a position being an assistant to him, and so I decided to do that for a lot of reasons. One, I had a he was a wonderful man, and I had a lot of respect for him. And secondly, it, you know, I do have the sort of the service side is a big part of who I am. And I. Did learn a huge amount. So, you know, my I was sort of a gopher, but my job, nominally, was to work on business issues for him, so to bring a little bit of a business perspective to what he was doing at the State Department. But we ended up traveling around the world, going to conferences, working on, you know, the issues of the day at that time. And I think that, you know, the, the first thing I learned is how hard government is. You know, if you’re in business, you or investing, there’s usually a pretty clear bottom line. You know, you’re trying to improve your revenues, or you’re trying to beat a benchmark. If you’re an investor, or whatever it is, there’s a pretty, pretty clear bottom line. And, you know, in diplomacy, in the government, there’s not always a clear bottom line. There’s not a clear agenda. Different people have different agendas. What they say their agendas are isn’t what they really are, and it’s much more complicated. So I have a lot of sympathy for people who are trying to get things done in the government, it’s very hard, and there’s good reasons for that, it’s because it’s less clear. But I think I learned a lot about global I learned a lot from John. He was very a straight shooter, and I was fortunate to have that experience, and I feel very privileged to have represented my country in a small way.

Kris Safarova  21:18

McKinsey, do you remember what surprised you the most once you joined something that you did not expect?

Sarah Keohane Williamson  21:24

So my McKinsey story is I joined as a summer associate between my two years of business school in London. And I had worked in London before for Goldman, and so I had sort of planned to plan to be in London for because I was a really, you know, exciting, interesting place. But then my, when I was graduating from business school, my then fiance, now husband, who is British, was offered a job in Texas. And so I called McKinsey and said, Can I go to Dallas instead because I had an offer to return. So can I go to Dallas instead of London? And McKinsey was maybe a bit surprised about the request, but was great about So, yeah, sure. So I had a really interesting sort of contrast of experiences at McKinsey. One was sort of three big legs. One was in London, where I was just there for a summer. So it wasn’t there for too long. Then I was in Texas, and I spent a lot of time working in Mexico, so between Texas and Mexico, and then I was in Boston, where I spent a lot of time working in New York. So so my McKinsey experience was probably more varied than perhaps some in a short period of time, for, for, for, for those reasons. And I think what I what I learned there, was really how to structure problems, how to try to communicate problems and answers, try to get to the to the key points, not all the points. To try to be able to speak to a CEO who has a very short attention span, a very short amount of time. And so I even today, bring a lot of McKinsey lessons to to the work I do.

Kris Safarova  23:11

And speaking of this, what maybe one skill or mindset McKinsey taught you that you still use every day, or almost every day?

Sarah Keohane Williamson  23:19

It’s to start with the answer. So the McKinsey mindset is sort of, what’s the governing thought, and then what are the things that support it? You know, there’s this phrase that it’s not a mystery story. Don’t tell people the facts, the facts, the facts, the facts. And therefore, you know this, because it doesn’t, it doesn’t work that way. So the start with the answer. And I think that’s hard to do, but it’s a very it’s a good way to try to structure thinking start with the answer.

Kris Safarova  23:50

And was there something that McKinsey taught you that turned out to be even more valuable outside of consulting than inside it?

Sarah Keohane Williamson  23:57

Outside of consulting, I guess what I would say is I worked again, with a variety of people there. The one of the studies that I worked I was put on a pro bono study in Houston for the Houston Fire Department. And that was a very different study than McKinsey would typically do, but it was about to make a long story short, it was basically there were fewer fires in Houston than there had been in the past because fire suppression systems and there were many more needs for ambulances. So there were not a fire trucks, there were too many fire trucks and not enough ambulances. So the question was, sort of, how do you rebalance a system that has gone from firefighting to dealing with all sorts of issues on this that happened, you know, on the streets, in homes in Houston and so that was a, to me, a systems change question, which is the world had changed because. Of technology because of other, you know, for good and for drugs and other things for bad. And so how do you really shift a system to react to a new environment? And I think that’s a that’s a lesson that I have taken to other parts of my life as well, which is, you know, when the environment changes, you can kind of wish it would go back to the old way, but that doesn’t usually work. You’ve got to really think about, how do you change the whole system to because, because there’s a you’re dealing with a new reality.

Kris Safarova  25:33

This is such a critical lesson for people to implement. This is so important. Was this someone that McKinsey maybe meant a sponsor or even a critic that deeply impacted the way you think or lead?

Sarah Keohane Williamson  25:47

There was the I worked with, a person very closely in Boston who has been, I have known now for decades, and somebody who was very smart, very hard working, and I think really understood the financial world well again, which is, you know, the world sort of, I grew up in, of investment, banking, investing, but would also, you know, question things in a way that just because it’s been done that way doesn’t mean it’s going to be do that way. So I think he’s somebody who’s been very good at anticipating that things really will change and and pushing people to question. So yes, I have a person who came to mind where you said that when you asked that.

Kris Safarova  26:30

And as someone who has seen sat on the boards of major companies, how do you now view the role of consultants? Is there something that you wish more consultants understood, and maybe something that you even only understood later on, or understood to the degree needed?

Sarah Keohane Williamson  26:47

Yeah. Well, I think the good news and bad news about consulting is that you typically don’t implement things. So usually a consultant comes in to a situation, tries to evaluate the situation, maybe brings tools that somebody doesn’t have a technology consultant or, you know, a research methodology, whatever it might be, and then brings that to bear on the problem. And what a good consultant does is they understand, they know what they know. They structure problems well. They listen well. And oftentimes the the answer to a problem is is sort of sitting in plain sight, but you you need somebody to structure it and pull it all together. But what consultants don’t do, by the nature of being a consultant, is then take that answer and make it happen. And so I think that the the best consultants understand that making it happen is actually quite hard and and I think why a lot of people end up leaving consulting is that they want to, they actually want to get their hands dirty and make things, make things happen. So to me, that’s always the difference, which is, can you, you know, what, what I, what I try to do is take the best of consulting, which is being analytical, being able to step back, not being, you know, maybe not being conflicted or not having, you know, wanting one side to, you know, wanting, wanting an answer to be true, But being able to ask what answer is right, but then also being able to get it done.

Kris Safarova  28:25

And this is actually one of the common regrets I also hear from senior partners who spend the entire life in consulting later looking back. They feel I really loved my career, but I wish I was on the client side so I could make sure that things get implemented. Because a lot of the things we proposed never got implemented.

Sarah Keohane Williamson  28:44

Yeah, and they probably didn’t for very good reasons, or maybe just because, you know, it was hard, it was hard, yeah.

Kris Safarova  28:53

So you recently wrote the book. What do you want someone who reads that book to truly take away some key things you want people to take away after reading the book?

Sarah Keohane Williamson  29:02

Yeah. Well, I guess the one thing I would say about my experience, before I even get into that, is then having spent 20 years at Wellington, which is a big investor and and then in my, you know, sort of my hobby of being on investment committees for, you know, colleges, hospitals, that kind of thing. The the what I what I’ve tried to do in this book is take the training of being an investor from multiple angles and translate that, if you will, for business people. So the idea of the book, which is called the CEO’s guide to the investment galaxy, is that CEOs sort of go on their journey and and we’re, you know, kind of riffing off of the Hitchhiker’s Guide to the Galaxy, which you you may. Be familiar with that book where people, a couple people, fly around and land on different planets, and the guide sort of tells them before they get there, you know, are they Friend or Foe on this planet? What it expects so? So this is meant. This book is meant to be a very straightforward guide to the investment community from somebody who has grown up in the investment community, but who feels strongly, as I do, that the the role of the investment community is to fuel business success. It’s to fuel innovation. It’s to fuel growth, because that is what leads savers to build wealth over time, to retire with dignity, to fund their children’s education, whatever it might be that they’re looking for on the one side, and for the companies on the other side to innovate, develop new products and services you provide us with, you know, most of things we all work with every day and use every day, that really, you know, make our lives better, from from medicines to technology to whatever it may be. So the impetus for the book was having grown up as an investor. I spent at fclt a lot of time with companies and company leaders, and have recognized that there’s a real disconnect between the investors in the companies, sort of in the way they look at the world. It may be their language, it may be their training, it may be whatever it may be, but most business leaders have gotten to the CEO office because they’re either a great technologist or a great leader of people. Maybe they led a big division. Maybe they led, you know, one region of a company, and then became the CEO. So they have been very successful at something, or they wouldn’t be in the job, but they probably didn’t grow up as an investor. And so then all of a sudden, they’re, you know, they’re somebody says, you have to deal with the investment community. Okay, now you’re now you’re in this chair, you have to deal with the investment community. And they have, in general, a very sort of quaint, old fashioned view of the investment community. And that view is that, you know, there are people who analyze their company and think hard about their strategy and want to put money into a company that’s going to be successful, and all the things that we wish were true, but just aren’t, isn’t just not the way markets work today. And so the whole idea of this guide is to say to leaders of businesses, if you’re trying to build a company, you probably need capital. You need to understand where those that capital is coming from. What are the time frames and incentives of those people in the investment community? Who are they? What are they up to, just like the guys flying around to the planets, who are these creatures? And what language are they speaking, and what are they trying to accomplish? So, so that is the goal in a very straightforward way, because most investors don’t, don’t explain what they do in a way that makes any sense to company leaders.

Kris Safarova  33:15

And I love that you made it fun.

Sarah Keohane Williamson  33:19

It’s meant to be fun. If you look at the book, you will see pictures, and we, we’ve kind of given a moniker to each so the the structure of the book is sort of what, how you know, what are markets like today? Because, again, many people sort of have this view of markets, maybe like they were 50 years ago, but not like they are today. Of course, today, markets are driven by professionals, not individuals. They are driven by algorithms, not people thinking about their you know, sitting there with a pen and paper, and they’re driven by incentives that are essentially all either benchmark relative investors are competing against a benchmark or their peers, and that not, not trying to necessarily get a total return just to, you know, compound money over time. So markets are really different than they used to be, and they’re really complicated. So the first the first part is they’re just really different. The second part is, Who are all these players? Because once you get into it, there are a lot of people who are called the investment community, but they’re really different from each other. An investment banker is totally different than an asset owner, you know, such as a pension plan, who’s totally different than, you know, a hedge fund or a private equity firm. So who, what are all these things? And then the last part of the book is meant to be kind of typical journeys of CEOs. So if a CEO is leading a company that’s doing well, what can they do if they’re if they’re leading a company that. Has to pivot. What can they do if they’re trying to launch a new company or go into a different market? What? What do they need to do? So what we’re trying to do is say, for a business leader, or someone who’s aspiring to be a business leader, how do you learn the lessons that a lot of very experienced CEOs sort of learn the hard way, but how do we make that easier with the goal that businesses thrive and they can build great companies and not get off track by some of the incentives of the investment community, which make perfect sense for the investors, but they just don’t have much to do with building a great company.

Kris Safarova  35:41

Sarah, and you emphasize that CEOs must build relationships with different types of investors before they need support from those investors. What are some of the best ways a leader can do this effectively?

Sarah Keohane Williamson  35:56

So I think the first thing is really understanding who their investors are. And even the word investor is sort of a funny word, because does that mean? So we talk about in the book asset owners, who might be the people who ultimately own the company. So that might be a pension plan, a sovereign wealth fund, an endowment and foundation, a retail individual. So who really owns it? Then they’re all the people in the middle. So let the asset managers, the people who buy and sell the stock. Then there are the intermediaries, such as the sell side research. Now, if you talk to most CEOs, they when you ask them about their investors, they’ll actually talk about the sell side as a research analyst, because they’re the ones they spend the most time with, but those are not actually investors, in that they don’t buy stock, and then the ones the asset managers, may buy the stock or sell the stock, vote the shares, but they’re not actually their owners, because the owners are ultimately the pension plan or the sovereign wealth fund, whoever that may be. So I think the first thing that a good CEO does is actually understand who owns their shares and who makes the decision. And those are two different things. So that I think that who really owns my company sounds like a funny question asked most people should know that it’s it’s actually quite hard to figure out, but it’s worth figuring out who the actual owners are. So I think that’s the first thing. And then it is, who do I want to own the company? Is it? Do they? Do they care? Is it fine if there’s high turnover, or, excuse me, quick, people who just trade trade. Or do they want to establish relationships with with anchor shareholders, for example, people who might own a big chunk of the company, and different companies will will have very different views on that, depends how dependent they are on capital, all sorts of other things. But really having, the way that I think about it is almost, I’m sure, almost every company, if not every company, has a customer strategy. If you ask them, what customers do you want? Why do you want those customers? How do you target those customers? Almost any company could give you a very clear answer to that question. If you say, what’s your investor strategy? You know, who are your shareholders? What shareholders do you want? How do you target those shareholders? You often get a very garbled answer, with the exception of some of the best in the business. So that is the problem, that there’s a little bit of a view that you just have to take what comes and you can’t control it. You know, they’re all money’s all the same. Those things don’t serve companies well in the long run.

Kris Safarova  38:39

And you already started touching on it, but to give it some extra space, because it’s an important question, what are the most dangerous misconceptions CEOs have about the investors, and how does the blind spot, so to say, show up in daily leadership decisions?

Sarah Keohane Williamson  38:58

So I think the most dangerous thing is that companies CEOs think that their shareholders are on their team, right? So if you think about a typical company, they work with, and we write about the example of Coke and Pepsi in the book, Coke is a great company. So is Pepsi. But I’m and I’m sure the people at Coke, the CEO and the the employees and their distributors and everybody they go to work every day trying to make coke the best, right? They’re trying to make coke succeed. They’re trying to make coke beat Pepsi. I’m sure it’s more complicated than that, but in simplistic terms, the assumption, not necessarily on their part, but on many people’s part, is that their shareholders would think the same thing that they if they own shares of coke, that they would want coke to be Pepsi. But that’s actually not really true, and so I’ll explain why. So there are a company like Coca Cola has a lot of retail shareholders because it’s household name. It’s an old company. So the retail shareholders probably are on Coca Cola steam. They probably don’t own Pepsi shares. You. They want coke to win. But then you’ve got the hedge funds who don’t really think about as a general role. Don’t really think about companies as much as trading patterns, strategies and so on. So they’re using, they’re they’re usually using, they’re nothing about the company per se. They’re thinking about the security. So they don’t really care if it’s Coke or Pepsi. It’s just a security to them. Then you’ve got the index funds, and they’re going to own both Coke and Pepsi forever in regard to the index, so they don’t care if coke wins or Pepsi wins. And then the most challenging part is you have the active managers like Wellington, where they’re managing against a benchmark. So if a portfolio manager owns less of coke shares than are in the benchmark, then they think of themselves as short coke. That makes sense. So they’re a shareholder, but they actually don’t want coke to succeed. And so when you add all of this up, not quite half of Coke’s shares. Shareholders actually want coke to beat Pepsi. Now, that kind of thing blows most CEOs minds, because the challenge is their assumption that they usually make is their shareholders are on their side. They own the shares. They’re their owners, but that’s not what they’re they want them to succeed over long periods of time, and that’s true for some, but that’s not true for a lot. And I think that’s the source of the disconnect, because then if a shareholder says to a company, you know, we think you should do this, that, or the other thing, they assume they’re on the same team. They assume they’re supporting them. They assume they want them to succeed. But if that’s not true, or if their definition of success is just simply different, then that’s where the misconceptions come in, and the friction comes in, and often timeframes are part of that, which is, you know, somebody’s got a different timeframe than somebody else. So again, the the investors incentives aren’t wrong, they’re not bad, the company’s incentives are not wrong, they’re not bad, they’re just different from each other. And that’s where you often see the disconnect.

Kris Safarova  42:16

And in your view, how has the CEO role fundamentally changed over the last, let’s say, 20 years because of what is going on in terms of shifts in the investment landscape?

Sarah Keohane Williamson  42:29

Yeah. So I think 20 years ago, or longer than that, it perhaps people didn’t have to worry too much about activists. I think many CEOs had their board were sort of friends, you know, they were, they were, they were sort of, you know, or at least friendlies, and they didn’t get the kind of public scrutiny that they do now. So the job of a CEO today is is very hard, because they cannot say in this world of social media, they can’t give one message to one group and a different message to a different group, which I think you could in the past. You could tell your employees something, you could tell your customers something, you could tell your shareholders something, and each would listen to their own message. That doesn’t work anymore. And so the challenge that CEOs have is they have people who want really different things. They have, whether that’s employees or customers or shareholders or other sorts of stakeholders in their community governments, and they have to try to communicate with all of them in a way that resonates with the others, and that’s very, very hard. So I think that’s the biggest difference. Is, I think 20 or 30 years ago, a CEO would kind of be able to talk to different constituents in a different way, and now it’s very hard.

Kris Safarova  43:59

What are the signals that a CEO is sending, perhaps without intending to that attract their own kind of capital?

Sarah Keohane Williamson  44:08

So one thing that is controversial, but I believe, is that CEOs probably spend too much time on quarterly calls and talking to whoever dials in so who dials in on a quarterly call? It’s not typically shareholders. It’s typically the sell side analysts. Those are the people who ask the questions and and, you know, at and just to explain why, you know, the sell side analysts, they tend to ask questions, they tend to publish their reports. That’s what they want to do. So they’re sort of, they’re more like a journalist, a financial journalist, or journalist with a spreadsheet in our book. We call them weather forecasters, because what they do is they take in all the information that they can, and they make a prediction about what’s to come next quarters, earnings, next year, whatever it might be. And usually they’re, they’re, they’re quite good, just like weather forecasters are usually. Pretty good. Sometimes they’re really wrong, but usually they’re good. So they spend a lot of time talking to those people, and then then the that’s not a problem, if they’re just speaking to them. But then they listen to those short term questions and the short term people, and when they listen to the question, how many you know, how many widgets Did you produce this quarter? Why is this good? Then that’s when sometimes it gets into their head that they should be doing something short term to improve their stock price in the short term. And the kind of things that we’re talking about, you know, the classic examples would be cutting r and d spending, or cutting marketing spending, because you realize you’re going to miss your earnings for next quarter in the short run, that gets you there in the long run, it degrades the business as a whole. So I think what the best CEOs do is they let their CFO or their investor relations person or somebody else really handle most of those very you know, the more short term questions, the more short term oriented people. And they then think about who their long term shareholders are that they really want to spend their time on and and spend their time, spend their time there. So of course, you have to disclose things to everybody at the same time in terms of facts and so on. But companies still talk to their investors, and that’s a good thing. So spending where a CEO spends her or his time, I think, is what’s critical.

Kris Safarova  46:33

And the last question I wanted to ask for today is, how should the CEO think about communicating risk and long term bets to an audience condition for short term performance, let’s say if they have to talk to?

Sarah Keohane Williamson  46:47

Yes, yeah. So the the best practice is to lay out a roadmap, a long term roadmap, of where you expect to be going. And so short term is not bad it, but it needs to be a milestone on a longer term path. And so let’s just say a company needs to make big investments because the technology is changing, or because they’re entering a new country, or whatever it might be if they have a long term roadmap that lays that out and where they’re going to go. The investors take comfort in that the longer term ones do now, inevitably, something will change. The market will change. There’ll be a geopolitical event, whatever it is. But then the CEO can say to the investor, well, I was going to do this. But now, of course, as you see, things have changed, and so we’re going to shift in this way. And investors are very good at changing their minds. Look at just, look at what stock prices do every day, like investors are. CEOs are often loathe to say they change their mind. Investors change their mind all the time because interest rates change. You know, policies change, whatever it might be. So having a long term plan and being willing to say, well, we’re shifting that plan for these reasons, I think is the is the fundamental way to having more, having stronger and better and longer term engagement, and getting out of the quarterly cycle, and then, of course, definitely not issuing quarterly guidance. A minority of firms issue quarterly guidance. Now it’s less than a quarter, and it’s a it’s a detrimental practice.

Kris Safarova  48:27

Sarah, thank you so much for being here such an incredibly interesting discussion. Where can our listeners learn more about you? Buy your book? Anything you want to share?

Sarah Keohane Williamson  48:36

Yeah, so the book is The CEO’s Guide to the Investment Galaxy. It’s available for pre-order on Amazon or on Wiley, who is the publisher’s site, so typical places. And then to learn more about fclt global and our work in terms of focusing capital on the long term, our website is fcltglobal.org, and we have a lot of research that we’re pleased to share there. So either of those places would be a great place to go.

Kris Safarova  49:08

Our guest today has been Sarah Keohane Williamson, author of The CEO’s Guide to the Investment Galaxy. And this episode is brought to you by StrategyTraining.com. If you want to strengthen your strategy skills, you can get free resources from FIRMSconsulting. You can get the Overall Approach Used in Well-Managed Strategy Studies at firmsconsulting.com/overallapproach. You can also get McKinsey and BCG-winning resume example, which is a resume that get offers from both of those firms. And you can get it at firmsconsulting.com/resumePDF. And you can also get one of our books. It’s called Nine Leaders in Action. We actually co-written it with some of our amazing listeners and clients. And you can get it at firmsconsulting.com/gift. Thank you so much for tuning in, and I’m looking forward to see you all next time.