Announcer:
From the library of the New York stock exchange, at the corner of Wall and Broad streets in New York City, you're inside the ICE house, our podcast from Intercontinental Exchange on markets, leadership, and vision and global business. The dream drivers that have made the NYSC an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism. Right here, right now, at the NYSC and at ICE's 12 exchanges and six clearing houses around the world. Now welcome, inside the ICE house, here's your host, Josh King of in Intercontinental Exchange.
Josh King:
Let's take a trip back to October, 1986. The Mets are winning the World Series in seven games. Thanks to Mookie Wilson's dribbler through the legs of the Red Sox first basement, Billy Buckner, in game six in the Chase stadium in Queens. Now, over in lower Manhattan, let's switch the action to 85 Broad Street, the old headquarters of Goldman Sachs, the legendary investment firm with NYSC ticker symbol GS that now resides in a gleaming office tower at 200 West Street, which last year the firm marked its 150th anniversary since its founding back in 1869. 1986 again, John Weinberg, then the senior partner at the firm, picked up his phone and began to individually dial the phone numbers of 37 of his best employees. On the other end of each call was someone selected to join the ranks of Goldman's illustrious partnership.
Josh King:
The impact of those storied phone calls, now more likely a cell phone than a landline, was the jumping off point for a conversation with our guest today, Jon Winkelried, himself a long time Goldman partner, even once in line to run Goldman when he served as its co-president from 2006 to 2009. He's now the co-chief executive officer of TPG Capital, one of the largest private equity companies in the world. Now, the invitation to new partners initiated by that phone call has been a yearly event at Goldman, but something new happened on that day, 1986, 34 year ago. On Mr. Weinberg's call list was Jeanette Lobe and Garland Wood, who that year became the first female and African American partners in the firm's history. Those quick calls had massive reverberations because, to paraphrase New York Stock Exchange president Stacy Cunningham on following in the footsteps of Muriel Siebert during her own path to membership of the exchange, no one else would ever again have to wonder if it was even possible.
Josh King:
The addition of Ms. Lobe and Mr. Wood was part of an effort that continues today at Goldman to add partners who represent not just diverse backgrounds, but bring a range of experience outside the historic focus of the investment banking and securities divisions of the firm. The effect of this can be seen in the most recent class of partners from 2018. The 69 candidates represented 13 different divisions of the company hailed from 18 different countries. Nearly a third were under the age of 35. Included in that group was the highest percentage of women and people of color in the history of the company.
Josh King:
Our special host today interviewing Jon Winkelried is someone intimately familiar with this process. Christina Minnis became a Goldman partner in 2008 and is now the firm's global head of acquisition finance, reaching that plateau after joining in 1998 with leadership roles in investment banking, fixed income, and the consumer retail and healthcare group, among others. The conversation between Christina and Jon on was recorded live on stage at the recent New York stock exchange board advisory council networking summit before a gathered audience of nearly 60 board candidates and representatives from 22 companies listed on the New York stock exchange, looking to add new diverse directors.
Josh King:
The next voice you will hear after the break is Christina's. Her conversation with TPG Capital co-CEO, John Winkelried on what it takes to serve on a company's board, the differences between sitting on a private versus a public board, and why TPG ties executive compensation directly to improving diversity. That's right after this.
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Christina Minnis:
Well, thank you. I can't say how pleased we are to be here. This is something that's very near and dear to both Jon's and my heart. I'm going to give you a little bit of a background on him, because it's incredibly impressive. He was my boss, once upon a time. Hired me. Hired me and actually made the phone call when I made partner at Goldman Sachs. To those of you, that's kind of probably the most important day in your life, besides getting married and having your first child, is when that phone call comes in from the president of Goldman Sachs asking you to be a partner. I remember exactly where I was.
Christina Minnis:
Jon's background is incredibly, I think, relevant in many ways. Co-chief executive officer and partner of TPG today, was formally with Goldman Sachs for 27 years. He retired in 2009 as the president and chief operating officer. He became a partner of the firm in 1990 and he had a series of leadership positions around the firm, which I actually also think is really relevant as we think about our own careers in terms of the importance of operating experience. For example, he was on the management committee of the firm. He was on the partnership committee of the firm, capital committee and founding chairman of business practices committee of the firm, and he also served on our own board of directors at the firm.
Christina Minnis:
Prior to joining TPG, he managed his own firm, JW Capital Partners with investments across a range of industries, including technology, real estate, healthcare, one of my personal faves, and natural resources. Was also a strategic advisor and partner at Thrive Capital, a New York based venture capital firm focused on technology investing, and also is an advisor TTSSP six street partners, which is TPG special situations group and credit platform. Currently, he sits on a number of boards, Evolution Media, McAfee, Delos Living, LLC, Anastasia Beverly Hills, Bounty Minerals in Cadre, also serves on the board of overseers for Memorial Sloan Kettering, which is another question I'm going to pose about the importance of charitable boards versus public boards, also serves as a trustee of University of Chicago. Received his BA in economics from University of Chicago in '81, an MBA from University of Chicago in '82, and you're currently, I believe, yes, on the board of trustees of Vanderbilt.
Jon Winkelried:
Yeah.
Christina Minnis:
Yeah. Long history. I think what I want to first start with, and this is something that you and I came up with a few years ago. My alma mater, Yale approached me about maybe doing an executive program focusing on C-suite women that have not yet been on a public company board. What they were trying to get at was the fact that there's a finite group of women that are currently sitting on public company boards. Many of the search firms, the first question out of their mouth, when they say we'd love to have a candidate, but must have had public company board experience, you get into this vicious circle of going back to the same candidates. I actually thought Yale was onto something.
Christina Minnis:
At the same time, Jon and I had lunch in California. He had mentioned to me that he had come out with a mandate inside of TPG to mandate each of the control private equity companies have a female director, I think at the time, by a certain period of time, a couple of years.
Jon Winkelried:
Yep.
Christina Minnis:
About three months later, they say that California came out with its edict. Jon and I have been talking about this topic for a long time. One of the things that we thought was really interesting is contrasting a private equity board, and the experience that you might have on a private equity board, and how that could translate to a public company board. Why don't we start with, having sat on the Goldman Sachs board public company, I also believe is McAfee public or one of the other ...
Jon Winkelried:
No, not ...
Christina Minnis:
Not yet. Not yet, but currently sit on a number of private boards. How do you see that dichotomy of experience?
Jon Winkelried:
First of all, in terms of participating on a board, you have to start somewhere. Our thesis at the firm was that broadly, I think we felt like diversity of thought, and diversity of view, and diversity of experience was very important to our portfolio, and to our portfolio companies. As Christina mentioned, we decided that we were going to undertake a program at TPG to, and it's a little bit more expansive than you described, we decided that we would change the starting with the gender diversity composition of all of the boards where we either have control, or we have considerable influence. There are a lot of investments where we don't have control, but we have considerable influence as a minority investor. We decided we were ... It was about 20 months ago that we set out on this journey to basically do this.
Jon Winkelried:
We did a lot of work in terms of evaluating how could we think about candidates, women who would be interested, capable, of serving on these boards? We began to develop a variety of different initiatives to source candidates for these boards. We started out by actually just going to our own network and basically saying, "If you know women who have a lot of great experiences, doesn't matter if they've been on a board or not on a board, but have a lot of great experiences, a lot of great expertise ..." we set up a thing within our human capital team basically called talented TPG. Through that vehicle, we had people route through either introductions, or resumes, or whatever, basically people into that.
Jon Winkelried:
Amazingly, through that, as well as a number of external relationships we developed with different organizations that were focused on the development of women potentially for board positions, or different cohort groups, we have developed a database, I'll come back to this later, maybe, by the way, but we developed a database of almost 800 women who are really very special and capable of adding value on a number of different types of boards and a number of different types of roles. We're actually, besides placing women ourselves on our own boards, we're actually trying to figure out what to actually do with that database because I think it's a very valuable list of talented people.
Christina Minnis:
Can you share that with Goldman Sachs?
Jon Winkelried:
No, no. No, we're actually, seriously, we're actually thinking about how can we share it, because we've got all these very qualified women on this list. We don't want to ... Just to put some parameters around it, we have added, in the last, basically 18 months, we've added 64 women to about 55, 56 of our boards.
Christina Minnis:
That's impressive.
Jon Winkelried:
In some cases it's more than one, some cases there is some other form of diversity associated with it as well, but our focus has basically been gender diversity as a way to basically start this process. We're now beginning to move it into other categories of diversity, as you would expect. What we also did internally is we have this process of our board diversity initiative, is a special segment of the partner level and principle level people in the firm. It's a special segment of their review. When they come in for their review at the end of the year, there's actually a single page among the pages that we have for somebody's review, besides attribution for deals, value creation, all the other stuff that we look at in our industry, there's a page that basically has their portfolio companies, the composition of their boards, women added. There might have been preexisting women on the board. This is attribution for women actually added. If it's really good, we're recognizing that. If it's really bad, we're recognizing that as well. It's affecting how people get rewarded, and compensated, and advanced in the organization.
Jon Winkelried:
There's no better way to get people's attention than to focus them, with respect to their review, and their annual compensation, and how they move through the organization, particularly in an organization like this, or at Goldman Sachs, for that matter, because I'm familiar with how that works. When you get into the subject of public boards and private boards, it's really an interesting conversation. The single biggest difference, this is changing a little bit, is that private boards are dominated basically by people who are either acting as, or have a investor's mindset. An investor's lens. That's how the boards are dominated on the private side.
Jon Winkelried:
That's changing a little bit as well because particularly, as it relates to value creation, and depending on where a company is in its life cycle, there are other skills, there's other expertise that are needed on private side boards. For instance, I chair the board of McAfee, which is a big purity software business. We have brought two women on the board now, since I've been on it. One basically has a deep, what I would call, broadly corporate operating experience, and has sat on a number of public boards. We were trying to bring some more structure and public board influence in terms of governance to our private board. That's why we did that.
Jon Winkelried:
Another is coming from the place where she is a CFO of a public company. We're trying to bring in more public company audit side experience in that particular case, because the company is evolving to a point where we feel that's necessary. Prior to that, the board was basically dominated by two of us, plus others sitting around the room from TPG, one person from Thoma Bravo. There was a very much of an investor's mindset. That investor's mindset is generally focused on value creation inside the company. What are we doing in terms of ..? What are the key levers and drivers of value creation? For different companies, it's the different things. When that company, as an example, the focus of the real value driver, that company has got an enterprise position, a consumer business, and the key value driver there is growing the enterprise side of the business. A lot of focus on go to market, a lot of focus on how we drive the margins in the business and the cost of go to market, et cetera. Now, the company was ... That was a carve out from Intel. It's been stood up on its own now. The company's evolving into its next phase, and so the needs, in terms of governance around the-
Christina Minnis:
That board's also very small. It's seven or eight people?
Jon Winkelried:
Yeah. Now it's about eight. Yes.
Christina Minnis:
Right. Which is also, I think, the average private equity board I think is between seven and eight.
Jon Winkelried:
Yep.
Christina Minnis:
Often, there's just currently probably just one outsider. It's a smaller organization.
Jon Winkelried:
Yeah. Well, there's now three outsiders on that board.
Christina Minnis:
On that board, but I'm just saying, if you looked at the average private equity portfolio company, it's probably a smaller board, which I think also gets to a little bit of the differences between a public company board and a private board.
Jon Winkelried:
Yeah. That's right. Well, I mean, when you consider outsiders, there's a difference between executives versus the private equity sponsors, and then true outsiders. Public company boards, I think that the makeup of public company boards, obviously, is the focus and the functionality of the board, obviously, is divided mostly in committee work and committee structure. But again, and this is changing a little bit, I think until recently, public boards were not ... There was probably less of an investor and value creation mindset around public company boards for a long time. Now, there are forces that are changing that. There's activist forces that are beginning to change that. There are various forces that are changing that, but I would say, if I were to distill it down to the substantive difference, I would say that investor mindset dominating around the table in a private company board context is probably the primary difference between that and public company boards, besides obviously the way the boards work and just the flow of activity and the committee structure. Some private company boards have some committee structure, some have no committee structure whatsoever.
Christina Minnis:
I also think, with a lot of these private equity companies growing and getting larger and larger, the exit opportunities set for these private equity investments, there's also the IPO, which is a very attractive way to start a private board, understand the company, and then take it public.
Jon Winkelried:
Yeah. Once you get to a point where you think you might be exiting through a public offering, you start focusing on public company readiness. Public company readiness involves a lot of things. There's financial structure, there's audits, there's board structure. You want to be able to move from where you are in a private context, into a public context, pretty seamlessly without a lot of disruption.
Christina Minnis:
You obviously have made great progress. At Goldman, I think we're incredibly proud of the progress that we've made. I think the last four ads have been diverse. I think David's incredibly committed to this as a key agenda item for inclusion diversity. I think the board at Goldman now is 54% diverse across race, gender, and LGBTQ. We're really excited. You've added 50 plus people to your boards. Why do you think the progress is as slow as it is? Because if you look at other countries, constituencies around the world, in Europe they've made great strides. I think it's still slower here. Why is that, do you think? What can we in this room be doing more of to continue to advance it?
Jon Winkelried:
Yeah. Well, that's a good question. I think, first of all, public company boards, as far as the numbers are concerned, are ahead of private side boards. That's probably because of who's making the decisions, and how decisions are being made, and what the external pressures are. We decided to proactively take this on, but I think that ...
Christina Minnis:
You're the outlier.
Jon Winkelried:
Well, so back to your question. Why? Well, first of all, I think, number one, there's just bias. There is the notion that lots of boards are populated with influence from, and again, this is different for public and private. Okay? Because there are certain governance controls around some of this stuff, but just generally, lots of boards are populated with people who, the CEO, or someone who's very influential on the board knows, and feels comfortable with. If management and those people are more likely to be white males, well then, guess what? Guess who's going to be the next guy on? It's going to be probably be a white male. I think there's just general bias in the system that causes that to perpetuate. If you want to change that, you've got to break the cycle. You've got to be particularly aggressive about breaking the cycle. That's one example. Another is ...
Christina Minnis:
That breaking the cycle's got to come from the buy side? In terms of ...
Jon Winkelried:
Well, I think that's one place where it can come, but it can also come from other influences, like Christina, you were telling me before about what's happened in France, as an example, where there are legislative initiatives, which require a certain different approach with respect to governance and the board, and who's sitting around the board. It could come from that as well.
Christina Minnis:
You think our country would ever go there?
Jon Winkelried:
Well, California's doing it.
Christina Minnis:
That's the country. It goes to the country? You're from New Jersey. Let's be clear!
Jon Winkelried:
I'm from New Jersey.
Christina Minnis:
You're from New Jersey.
Jon Winkelried:
Yeah. I can attest that California is not quite the same country as where I'm from, but look ... I mean, I don't know, crazier things have been proposed. I'm not sure it's completely out of the question. There are those kinds of influences, but I think that investor pressure is probably the most profound and the most direct, because at the end of the day in a public company, obviously, that's who you're working for. You're working for the stockholders. You have a responsibility there. If investors press enough, and we've obviously seen activist strategies that have pressed a lot on different companies, and it's changed a lot of things. In our case, as a private organization, with private companies, I think-
Christina Minnis:
Many do you have again? 140?
Jon Winkelried:
A hundred and ... Probably 160 plus, portfolio companies of different sizes and different types, but from our perspective, obviously, remember who we're working for. Our investors are firemen ...
Christina Minnis:
TAMASA ...
Jon Winkelried:
Teachers ...
Christina Minnis:
GIC.
Jon Winkelried:
Policemen. A lot of mostly big public pension funds that we're working for. They should have pretty strong opinions about this. Interestingly enough, I would say that, I've been in my current job now as a co-CEO for four years. I would say in the first, at least two years of doing this job and meeting with almost all of our LPs, I could count probably on one hand the number of LPs that raised this issue.
Christina Minnis:
That was two years ago.
Jon Winkelried:
That was two years ago, prior two years, meeting with all of our LPs, I could probably count on one hand the number of LPs that would proactively ask me about any form of diversity, diversity in our firm, diversity on our boards, any form. In the last two years, it's definitely ticked up in terms of people's consciousness about it and their focus on it. It's now become something that's more routine as it relates to ... If we're raising a new fund. In the diligence process for a new fund, it's now become more of a routine question that people are asking, but not as much pressure as you would think.
Christina Minnis:
I think the other area that I've seen personally that makes a big difference, and I think New York stock exchange, Goldman Sachs, we have a really interesting opportunity. We get asked a lot. Company will call up and say, "God, I'd love to add a diverse board member. Do you know somebody?" I think one thing we can also do is just own that whole networking effect ourselves, because I can speak from experience that we all have influence outside of the executive search firms, et cetera. I think most of the board placements tend to happen through people you know, word of mouth, versus placement.
Jon Winkelried:
Yeah. There is a pretty active executive search program now for placements for board members. Now, a lot of the executive search firms have gotten the joke and they've focused on diversity and diverse candidates, but you can call us, we have 800 of them.
Christina Minnis:
You said you wouldn't give me the database.
Jon Winkelried:
You, I would.
Christina Minnis:
What about the activism comment? Because I think that's a pretty interesting one, which is, it came up actually up at Yale, the concept of if certain public company boards would think a little bit more like owners of companies versus stewards of governance, or stewards of the downside management, in terms of risk management, would activism have such a prominent role going forward? What do you think?
Jon Winkelried:
I think that activism will ... Activism is focused on ... There are different activists in the market and they're focused on different things. I think most activists are focused on buying stock and then figuring out how to sell it at a higher price. I think that this is likely not to be a primary focus of activists and activism. There may be other forms of shareholder activism. There are the beginnings, by the way, of what I would call activist impact strategies, where there are some pools of capital now that are basically focusing on things like ESG. There are some pools of capital now focused on becoming more activists as it relates to trying to invest in a company and then apply various pressures to making a company more accountable and more focused on ESG related matters. If diversity becomes part of that, in a core way, I think you're going to start to see more activist pressure from the market in this category.
Jon Winkelried:
We have a fairly high profile impact strategy as part of TPE, which we call the rise fund, which is private investing in private companies. It's not public companies, but one of the things that we've been looking at, is we've been looking at exploring, extending the rise impact strategy to a public side strategy. We're in dialogue with someone that is actually creating exactly what I just described, who's got a background as a very successful, what I would call activist/constructivist. That's an area where I think you'll see more pressure applied ultimately.
Christina Minnis:
Is the premise ... I actually saw an article. I showed it to you before lunch. Someone did some data on 2,200 investments and looked at in those situations where there was a lead female investor. The IRR on that investment was up by 12%, which is pretty good. You think it's being driven because diversity yields better returns, as well as it's the right thing to do?
Jon Winkelried:
Well, I think it's being driven by some combination of diversity and broader ESG topics. We're evolving into a world where some people used the expression responsible capitalism, et cetera, things like that. I'm not sure exactly what that means, but I do know that consumers and customers of all of our companies care more today about responsible governance and the way we run our companies, and what we stand for, and what our core principles are. It is affecting consumption behavior. It's affecting consumption behavior. I do think that there's a fundamental element of being aware of, if you're running a company and you're thinking about how am I going to position my company and put my company in the best position possible to grow and to drive older value, I need to be cognizant of what's happening in my customer base and in my user base. That ish, it's clearly shifting. I think there's a relationship if you follow that all the way through between the performance of your company, and then worrying about these types of issues, whether it's diversity, or various ESG initiatives, how are we managing our company and what do we stand for? What's our core value set? I do think, ultimately, those things end up meeting. Sometimes, it takes time before they do meet, but I think they will.
Christina Minnis:
If you're comfortable sharing some of the most tense moments on a board you've been participating in, maybe not Goldman Sachs, because we've got some Goldman Sachs people here, but if you think about controversial situations on boards, what board members and what attributes of those board members really stood out to you as you try to get through crisis? You obviously experienced a fair amount of that in your past.
Jon Winkelried:
Yeah. That's a good question. Well, I think, generally, coming to the table with a true ownership mentality, and partnership mentality, as opposed to a got you, or kind of ... I don't know. Some people, maybe the Monday morning quarterback kind of like, "I told you. You should have done that." I think that's important because when things get tough, or you get into a crisis mode, I think coming together is pretty important.
Christina Minnis:
You hear the comment fit. We're always looking for fit on a board. I get worried when I hear that word, because that to me strikes of ...
Jon Winkelried:
Bias.
Christina Minnis:
You don't look like me.
Jon Winkelried:
Yeah. Yeah.
Christina Minnis:
How do you deal with cultural fit versus what you're just talking about?
Jon Winkelried:
Yeah, that's a good question. I don't have a simple answer for that in terms of sort of fit other than, I think you have to force yourself when you're obviously composing your board to have some standards about having diversity. If you have some standards about it, you're looking at people through that lens. It's like when somebody goes out and says, "I need to hire somebody," and they come back and they have three candidates, and they're all white males and you say, "Well, do you have any diverse candidates?" If you force people into a mode where you're not going to give them head count unless they basically start looking at it that way, people then start to be more creative and a little bit more open minded as to what they're looking at.
Jon Winkelried:
It's just a behavioral thing. I think board composition, if you have, again, public company, private company, might be different. In a public company context, you have a committee that's dealing with director candidacy and governance. That is a core part of what that committee does. A core part. When you have a private company board, it's a little bit different in that it's a small group of people that are driving, "Well, who's going to compose the board?" You also have to have some kind of initiative, or some kind of discipline as to ... You have to be open minded and broad minded about how we're thinking about this. Obviously, that's why we did what we did. But again, back in crisis, I think people coming together is one thing. I think having people on your board that have had ... When I was 40, I never thought it was really ... I always thought I had all the answers and I never thought that actually time and experience really was that important. Now that I'm 60, I think is really important.
Jon Winkelried:
Some level of time and experience, and having lived through some tough stuff actually is valuable. We had a situation this year where, in March, we had one of our most senior partners was arrested in the varsity blue scandal. That person was there one day and gone the next. We had to go into crisis management mode. Having lived through a few of those things before in my career, whether it was dealing with crisis around 9/11, or other types of dealing with crisis. In September of 2008, at which point I was on the Goldman board, among other things, you begin to learn these reps about what is important? How do you stabilize your organization? How do you communicate? Hopefully over-communicate. How do you keep people that don't need to be focused on the crisis, focused on other things? That kind of stuff.
Jon Winkelried:
Having people around a board table that have some experience with stuff like that, I think is very valuable. That's a real valuable attribute in a situation like that. Because your CEO, by the way, may not have lived through crisis. The last 10 years has been nothing but up. Somebody that was 23 in 2010, is 32 now in a much more senior position, and was a student during the financial crisis. That experience is really very, very valuable. I think having that around the-
Christina Minnis:
You are talking your own book, you know that?
Jon Winkelried:
What do you mean?
Christina Minnis:
You're 60.
Jon Winkelried:
I'm old?
Christina Minnis:
Yeah.
Jon Winkelried:
Yeah, yeah. Well, I have to be relevant somehow.
Christina Minnis:
Thanks everybody. Thanks in New York Stock Exchange for having us.
Jon Winkelried:
Thank you.
Josh King:
Thanks for joining us inside the ICE house. Our episode this week with TPG capital co-CEO, Jon Winkelried and Christina Minnis, Goldman Sach's global head of acquisition finance, was recorded live at the New York Stock Exchange board advisory council, networking summit. If you like what you heard, please rate us on iTunes so other folks know where to find us. If you've got a comment or question you'd like one of our experts to tackle on a future show, email us at [email protected], or Tweet us @icehousepodcast. Our show is produced by Pete Ash, with production assistance from Ken Abel and Ian Wolf. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
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