Episode 28: There is no substitute for the personal touch.

It is a huge pleasure and privilege to interview Paul, former President & CEO of CFA Institute, and someone I’ve known for several years.

A global traveler, Paul comes with enormous experience, and he was extraordinarily generous with his time and advice. I took advantage of that to cover many hot topics (career planning, the criticality of patience and networking, grabbing opportunities, leading from the front, change management, the validity and future of sustainable finance, the future of asset management, scope for CFA charterholders, gender diversity in investing etc.). His trademark self-deprecating manner conceals a highly successful career and Paul was refreshingly down to earth and insightful.

I hope you enjoy listening to this scholar and gentleman as much as I did interviewing him.

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The Real Finance Mentor | Binod Shankar · Podcast 28: Paul Smith- There is no substitute for the personal touch.

EPISODE TRANSCRIPT BELOW:

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This is Binod Shankar and you’re listening to the real finance mentor podcast from the realfinancementor.com. The real finance mentor is your go-to resource for insight and inspiration on careers in finance, CFA and more. Now you might think, why this podcast? Well, my goal is to deliver insight and inspiration for your financial career, by making it, one: relatable. I mean this is not theoretical stuff. We zero-in on the critical, practical issues. Number two: authentic. No bullshit, no side-stepping. The topics, guests and questions are all from that perspective. And number three: insightful. Take a Chartered accountant and a CFA charter holder, add 17-plus years as a corporate warrior, mix in 10-plus years of entrepreneurship, throw in a decade of full time CFA training. Add speaking, mentoring, cycling, mountaineering and other endurance activities, and that’s me! Welcome to The Real Finance Mentor, or as I call it: RFM.

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Hi everyone, this is Binod Shankar here, the real finance mentor, bringing you another episode of The RFM podcast that is designed to deliver inspiration and insight for careers in finance, specifically. I'm always looking for special guests, people who can come and talk about their vast experience and their challenges and their successes. And today I do have a very special guest. Someone I've been looking forward to hosting on this podcast for quite a long time. And lo and behold, is finally here. My guest today is Paul Smith.

Now, the long introduction about Paul Smith (I think it's well deserved and it's worth going through). Paul has more than 30 years of leadership experience in the asset management industry including over 20 years in Asia. Paul started his career in Asset Management at Ermitage International, an alternative funds management company, progressively taking up roles of increasing responsibility across Europe over 11 years, the last seven, of course, as the firm's CEO. Paul then joined Bank of Bermuda in Hong Kong, as ‘Asia- Head of security services’ in 1996. After HSBC’s acquisition of the bank in 2004, he served as a global head of security services and Global Head of alternative funds administration based in New York, where he was responsible for delivery of services to 2,000 investment funds with over $250 billion of assets. Paul then took over as chairman, CEO of Asia Alternative Asset Partners, a Hong Kong based hedge fund investment management firm.

Of course, the interesting part here is that Paul joined CFA Institute in 2012, as managing director for Asia Pacific, overseeing its expansion to China and India. He later assumed the leadership of its institutional partnership division, which is responsible for engagement with key firms, groups and associations in the global investment industry. He was appointed president and CEO of CFA Institute in Jan 2015, a position he held till 1st September, 2019, I should say, in which capacity, I've met him quite a few times. He's also a founding member of Sustain Finance a not for profit geared towards helping asset owners and managers integrate sustainability into their decision making process. Paul holds a master's degree in history from Oxford University, and is a CFA charterholder. He’s also a fellow of the Institute of Chartered Accountants of England and Wales, and worked as an auditor in PriceWaterhouseCoopers in London for four years, early in his career, which of course, brings another common topic because I'm also an auditor, a chartered accountant who worked with the big four. So, it is with a huge pleasure that I welcome Paul Smith to this podcast. He’s a person I like and respect tremendously, and I'm looking forward to this conversation. So, welcome to this podcast, Paul.

Thank you, Binod. It's great to be here, and sorry about that lengthy introduction. One of the disadvantages of old age is that you'll see it goes on forever and ever and ever.

Now, Paul, you moved from being an auditor at PwC, to fund management to fund administration, to advising funds, to CFA Institute. I've probably missed a few moves in between. Now, you did warn me earlier in our conversation, not to ask you about your career plan. So, I would desist from asking that, but I will ask you a related question, because I suspect youngsters can learn something from your very interesting journey. So, can you please take us through why you made the career decisions you did?

Well, I'll try. The point of my warning was really to say, as I think you would agree with me in terms of your career, that a lot of the things that happen to one in life are about fortune, hopefully good fortune rather than bad fortune. But it's about taking opportunity, rather than necessarily being planned at all areas or at all times during your career. But I think, the first thing you definitely need to put a plan for is when you come down from university. And I think that's really the part of your career where you perhaps need to put most thought into having a plan, and in my case, I did history at university. So, you either become a teacher, an academic; or you decide that you're going to have to get some form of formal training. So, for me, the obvious thing to do was to go into PricewaterhouseCoopers and to get an accountancy qualification, which would really give me three or four more years to sort of look around me, learn a little bit about business and to decide on my sense of direction. So, definitely plan for that first step from university. And the tips there, I think are- “go somewhere that is going to look good on your CV, somewhere that people have heard about, and go to a business, that's going to put some training into you”.

So a big four accountancy firm; obviously, they have huge training budgets, it's in their interests to put something into you. And then finally, you join with a cohort of young people who stay with you throughout your life. And I think that's important as well is that you have a peer group that you can calibrate your own progress upon. That was the only part of my career that I planned. The rest, the rest, I think there are some tips, but I didn't put a lot of planning into it. It was really about responding to opportunity.

So, I really fell into fund management, because I wanted to go work abroad, and the only job that I could find in Paris at the time, which is where I wanted to be, was in asset management. So I became a fund manager by default, and, for those young people who are watching this podcast, who are astonished about that, because they may be having a lot of struggle in their own first steps into the career. I mean, this was 1984. So, we are going back into prehistory, almost. It's a long, long time ago, and the world was different then and financial services were different. It wasn't the mainstream business that it is today. It was a backwater. It was what I used to call in the day, ‘a second son business’. You put your first son into a proper career. And your second son, the slightly less advantaged one, you put into fund management. And that's kind of where I ended up, by default. And so that was really the main career step if you like, and it was all about seizing an opportunity, wanting to make a change, wanting to learn new things. And I think those are the important things.

And when I look at my career changes, they were all motivated by that, really. Whether it was leaving the profession and joining the CFA Institute, or retiring even from the CFA Institute when I didn't have to but I chose to, because I wanted to keep learning things. I didn't want to go stale, I wanted to keep pushing myself, wanting to try new things, to take new opportunities. And I think those are the important things in life. When you feel that you're getting stale in a role, the next thing that's going to happen to you is you're going to be fired. So when you feel you're getting stale, make a change, whether within the firm, or changing it up in some other fashion, make that change. And if you have exciting opportunities presented to you like I was asked to come to Hong Kong to run part of a bank. If you have exciting opportunities presented to you, never let your own inhibitions, your own fears, stand in your way. Grab them with both hands, you'll never regret it. Even if that opportunity doesn't work out for you, you'll never regret pushing yourself to take new experiences and new opportunities. So, that's the best I can do there a bit. I think.

I think there's a lot to unpack there. Just as an example, the whole idea of responding to opportunities, just tremendously insightful and powerful, isn't it? I mean, you’ve got to keep looking around for the right opportunity and then just grab it when it comes along and stuff, instead of having, maybe, a rigid career plan. I also like the statement about the fact that once you get bored, that's probably career suicide and one must move on.

And I think that's the hardest, hardest thing for any human to do. Because we all like our routine, no matter how clever we might think we are or how talented we are, or we might think we are. We're all frightened of change to some degree. We all like doing tomorrow what we did today. So, it's a positive act, which is often the hardest thing to do- to shake yourself out of your routine, basically.

Absolutely. I mean, I get, and I'm sure you also do get lots of queries from youngsters, Paul; CFA candidates, CFA charterholders, who keep talking about and thinking about a long, like a 10 year career plan. And they have this, they want to have it mapped out all the way from analyst to associate to VP to CIO in asset management, which sounds very elegant and very focused. But I suspect there's something wrong with that approach. But I want you to tell me what's wrong with that way of looking at things and how exactly should they look at their careers?

I'm not sure if there's anything wrong with it, it’s always good to have a plan. I think what's the mistake is to sort of stick rigidly to it. I mean, I can't, I can never; (I) remember the great Mike Tyson quotes: ‘it's all very well having a plan, but when someone punches you in the face, your plan goes out the window”. So I think that's the important thing to remember- that no matter how well you plan, life will throw something at you, that requires you to respond. And so it's good to have a plan, but always be flexible.

I think the other thing to say to everybody listening is that life is an incredibly long race. You know, obviously our forebears died 20 years earlier than we are likely to die, and worked 20 years less long. As a result, the days where our societies can afford to put us on a pension at 65 are long gone, we're all likely to work until we're 70-75 years of age. So the key thing is there's no rush, you're likely to have at least three or four career changes of some degree, maybe not dramatic career changes, but some reappointing during your career. So, I think in the early years, that first 10, you should really look at them. And I know that's an awfully long time when you're only 20 years of age, because it's a third of your life, basically. But that first 10 is all about laying down foundations that are going to give you the platform to go down multiple different directions, as your life unwinds. And so that, I think, is the key.

Don't try not to shut too many doors behind you, too early on in the process. Keep yourself, keep your career, as general and as broad as you possibly can, learn as many things as you possibly can. Because you can't possibly know in your early 20s, what's going to really appeal to you. And also the world is moving and changing so fast. So, you might specialize in something that looks good for two or three years, but proved to be a blind alley, five or six years down the line. So try to keep your skill set broad, try and network, have a great peer group, try and understand the industry you're in, try and have as many connections within it as you possibly can. And plan for a 50 year career rather than a 10 year old career. Hopefully, life works out well and you're lying on the beach, or whatever else it is that you particularly want to do, by the time you're 35. But take it from an old guy like me, I'm 62 and I'm still working. That's going to be most people's life.

And it's interesting, you mentioned three to five major changes during the career. I can definitely relate to that, Paul, because I went from being an industrial banker to auditor in the Big Four, to then real estate development, and then quit corporate life to set up my CFA prep company in Dubai, and (it) grew and was acquired by Kaplan, and now another stage of my life is podcasting, etc. And if I look back, I could never have imagined that I would have taken this path.

They're all in some way linked to each other, one follows on from another. And I think that's fascinating...your career journey is much more interesting than mine. That's the interest in, what you've said is, that each one follows on from the other. And you can see why you ended up where you did. And there's a logic to that. But it's not something you could ever have predicted 25 years ago.

Yeah, I think like Steve Jobs said, “It all makes sense, and the dots all connect looking backwards”.

Yeah, that's great, that's great. Yeah, absolutely.

Let's talk about the industry of asset management, which of course, is your forte . I mean, there's been a huge rise in passively managed assets globally, such as index funds and exchange traded funds. You know, Cathie Woods’ ARK, for example. And then you have this jump in automation and trading and research and newinvestable assets like NFT's and cryptocurrencies. And so we’re also probably seeing a trend towards, maybe towards disintermediation with retail investors with the Reddit crowd and especially millennials in developed markets, seeing investment as entertainment, as evidenced by Robin Hood traders for example. So, it's all very fast and a bit bewildering. So in this context, how relevant will be the fundamental research oriented or focused CFA qualification, and by default CFA charterholders, in future?

Well, I think that's a great question. But obviously, if you're in my old seat at CFA Institute, it's the one question that keeps you awake at night. How do you keep a qualification in a fast moving world and a fast moving industry, relevant? I think the first thing to say and answer your question is obviously, education is always good. Trying to understand the way markets work is always a valuable piece of your education if you're intended to get into this industry, but the tools and techniques are going to change as you go through life. And clearly, what we're faced with, all we have been faced with over the last 10 years is a change in the way that companies are valued. And you look at tech companies, they're valued much more now upon client acquisition than they are on profitability.

Now, for old school security analysts, that's a problem because they're looking at the balance sheet, they're looking at the cash flow, they're looking at the profit and loss, and they're not looking at some of the intangibles that increasingly make up more and more of a company's net worth. And so what's happening, I think, is the techniques behind valuing a company are changing, but not the basic principles of what you're trying to do, which is to construct a vision of what this company is going to look like, and what in the end it's going to pay its shareholders back into, whether that's a dividend stream, or whether that's through a market exit or whatever.

So, the end goal doesn't change. But the tools do. And CFAI’s role, which obviously, I know they're working very hard on, is to make sure that the curriculum changes with the times. But it's not always obvious. It's easier said than done. You're also talking about a supertanker, rather than a small boat, and changing direction is never easy.

I think the other thing I'd love to say about what you're saying on Reddit and Robin Hood, and that is, that I remember sitting next to the gentleman who ran Vanguard, whose name temporarily escapes me at the time, Bill McNab at an industry friend’s function. And he said, and he was absolutely right, because I went back and checked it, that, “the rise in the number of CFAs in the world, the rise of the number of charterholders, was directly correlated to the decline in alpha in the markets”. And he was 100% right. Because the more professional people, well trained professional people, looking at stock markets, the less alpha there is defined by definition, because it's being mined and tapped all the time. And what happened until about five years ago, was this professionalization of the marketplace where most of the participants in the market were people like you and I, who had qualifications who in theory knew what we were doing, and could analyze stocks and market movements successfully. The great news for professionals is that with Reddit, with Robin Hood, the retail participation in the market is rising, and also the retail ownership in the market is rising. And that means that professionals are going to be able to add alpha in the future.

So I think that's really interesting. That's something that we all need to get into. It's obviously an ethical question as much as anything else. And it's a difficult question. But, you know, the markets are about taking a price from somebody else, which you believe to be incorrect. And that's all about information. It's all about asymmetry of information. It's all about professional judgment. And the more amateurs there are out there, the more likely you are as a professional to succeed. It's something that 's always worth remembering.

I never thought of it that way, thanks for that reassuring statement and more power to Reddit and Robinhood traders.

Absolutely, absolutely. Bring them on, bring them on.

But I must admit that sometimes you look at the stratospheric valuations of these mid and small cap tech stocks and you wonder what's happening, as an example, and you probably can relate to it anyway; so I recently saw an analysis where the analysts actually made a comment saying this stock is cheap at 25 times price to sales.

PAGE 26 of the curriculum. But I mean, sometimes also, as an older person, one has to sit back and reflect a little bit.Well I'll tell you a story about a very good friend in Hong Kong, he has three children; he gave each of them about now, I think, 15 years ago, 10,000 Hong Kong dollars to invest in a stock, one stock. And his youngest daughter put everything into Apple. And obviously, 15 years ago, I saw this stock go through the roof, good for her. And every sort of year, Simon would look at her portfolio and say, “you know, this has now got to a significant amount of money, you have to diversify”. And she said, “No, I like Apple, I use its products, my friends use its products. And when he gave this 10,000, she would have been no more than six years of age. And so she hung on. Every year, Simon tried to persuade her to sell, but she refused to do so; she still owns that, 100% of her stock portfolio is Apple. And she's now obviously a very rich young lady in terms of that.

And I think as an older person, we have to sort of listen to stories like that and say, “You know, we missed it. Really, we miss what was going on there”. She didn't at any point, during the last 15 years, know which way the wind was blowing and what was happening in the world, in her in her gut, much more than we did. And I think, I think as an older person, you kind of got to you kind of got to absorb lessons like that. And remember that sometimes you're just you, which is what's so exciting about life. You've got to stay young, you've got to keep surrounding yourself with young people, as you do with your podcasts and things like that, because actually, they have a lot of insight.

Yes, absolutely. Yeah. Going to the CFA community and CFA candidates for something that you're very familiar with, I mean, we are seeing large numbers of CFA candidates pass all three levels in India and China and certain other jurisdictions as well. But the capital markets in these countries, as you know, aren't big enough. I mean, the entire Indian stock market cap is just about $3.4 trillion, which is probably the combined market capitalization of Apple and Amazon combined. I mean, so one result of all this is that there are probably too many CFA level three pass outs, and even CFA charterholders. And as a result, a lot of them are working in middle and back office jobs, like risk, compliance, operations, financial planning, even accounting.

So, I've got two questions here, Paul. One is that supply should be limited. Should CFA Institute consider steps like tightening the entry criteria into the program into level one, essentially, or making the exams tougher or be more stringent in awarding the charter in terms of the quality of the experience? And the second question was, if this trend of oversupply for lack of a better word continues, will this adversely affect the reputation of the CFA charter, especially in the Asia Pacific region, which India and China are part of.

Yeah, a fabulous question. And it was something that kept me awake at night, because being based out of Asia and being a very frequent visitor to both China and India it was the single biggest ethical question if you like that, that we faced. And I suppose I try to divide it into two things.

The first question; I come, as I said earlier, I come from a liberal arts background. I know that's very unfashionable at the moment, but I am a historian by inclination, and a finance practitioner by necessity, I suppose. It's kind of the way that I would look at it. And so my view of life is that all education is worth acquiring and you should never stop anybody's ability, or access to education. So if a young Indian or young Chinese person needs to, or wants to acquire a financial education, there is nothing better out there than the charter today. And they should go and get that education. And they will be better for it. And it will help them in their life in many, many different ways, whether it's on a personal level, family level or a professional level. So I don't think I don't think restricting access to education is right.

What is the challenge? I think, and I think one that the CFA way before my time got wrong, was the award of the charter. And I think there we relaxed the rules on experience, to a great extent. And so I wouldn't say we actually have you know, when you look at the global population of financial professionals, there's no question, there aren't enough charterholders, it's not that there are too many. But charterholders tend to be perhaps, there may be too many, right this moment in India. There may be, I don't think they're anywhere near enough, in China. Having said that, there aren't enough in America, and there aren't enough in Western Europe, either. In fact, you look at all the people out there who are giving financial advice, who have no qualifications whatsoever.

But there are pockets where the charter is too common for the size of the financial markets today. And I think, India is perhaps the biggest example of that, because the financial markets haven't grown enough, and we spend a lot of time worrying about that a lot of time, talking to the industry in India, trying to get them to absorb more charterholders. But at the end of the day, it's a government regulation issue. It's a growing market issue. So if I had my time again, I would have tightened the criteria for getting the charter, more. I would have insisted more on direct investment management experience as being something that you at least had to have known 12 months of, rather than, this rather nebulous concept of support of the decision making process, which I think qualifies too many people, and then (it) leads to the second part of your question: to this dissatisfaction that people get the charter, they get the letters after their name, and then can't get the jobs that they feel, quite rightly, given the effort that they put in, that their efforts deserve.

And that is a moral responsibility. Although we never promised to find anybody a job, it's a moral responsibility, but secondly, a reputational issue, as you say, because news spreads fast particularly in a country like India, where everyone is super connected in terms of WhatsApp groups or other forms of social media. And you know, I do think it's a challenge where young Indians will say, “Why are you bothering to get this qualification? It's not going to do you any good”. And I also think there's a human aspect to it as well, that if you're doing a support function job in say, a business process outsourcing or knowledge process outsourcing business in Hyderabad or Bangalore, you're a little bit dissatisfied if you've got the charter. And I think that's very unfortunate, because you've got a great job, you're doing well, you're working, possibly for a great company, and there are lots of opportunities there. But within you, you feel that you're worth more, and I think that's a shame because you always want young people to be satisfied with where they are and what they're accomplishing rather than be a little bit upset with what they're accomplishing and what they're achieving. That's something that people of your and my age can have. You don't want somebody who's 25, thinking that.

All right. So, you've met 1000s of young, ambitious CFA candidates around the world. I mean, thanks to your globe trotting, and God knows how many frequent flyer miles you have racked up over the past many years. I mean, you talked to me earlier in one of those calls, we had that one big gap that puzzled you, in your interactions with them, when they came up to you to introduce themselves. You mentioned that. What is that gap? Can you talk about that in more detail? And, more importantly, how do you think these young chaps and young women can get better at closing that gap?

Yeah, I was always astonished. I mean, the point you made, I was always astonished when I went to a social event in India. I mean, there are wonderful things; everyone's there, they're always full. Obviously, they always start an hour late, as you know, but that's okay once you get used to it. That the time is only an indicator.

Time is very relative in India.

Very relative, and that's what makes India such a special country. But young people would rush up to you, and hand you their business card, and then run away again. And you would think to yourself, Well, what was that? What was that interaction, when I go to the US, a young person will come up, and they will talk to you. And they will spend time with you. And they will explain who they are, what they're trying to accomplish, and what they need from you. I don't know why, but young Americans, men or women, are intuitively brilliant networkers. Young Indians have that social skill to learn. And it is all about wanting to make a personal connection with somebody wanting to build your network. And that's a two way process. And I think perhaps that's the piece that some young Indians forget, is that it's not just about going up to somebody and giving them your card. What you've got to do is to ask them questions about themselves, tell them information about yourself, and try to have an exchange of information that is going to benefit both parties.

Now, you may think, as a 21 year old, meeting someone like me, for instance, that I have nothing to gain from that interaction. But it's not true. As we discussed earlier on in this podcast, I have a lot to learn from you. You have to tell me about your story. You have to have, in your own mind, what is it that you want to accomplish? Don't just say, “Paul, I want a job”. I mean, I know that, you don't need to tell me. I know that's why you're talking to me, you're not talking to me, because I'm good looking or anything else. You're talking to me, because you think I can help you. I understand that, you don't need to explain that.

What you need to tell me is how I can help you. So I need to know about you. I need to know what your strengths are, what your enthusiasm is, what part of the financial services industry you are interested in, and how you want to get there. And then my mind can start working upon how I can help you.

It's so important to remember that those soft skills are absolutely vital. And the best way of doing that...I had a great mentor in life- the first man I went to work for, had that skill that people like Bill Clinton allegedly have, and other great politicians; that when they're talking to you, you're the only person in the room. And that's what you need to do...when you're networking, make the other person feel that they are the most important person in the room. And the way you do that is by asking them about themselves. You know, it's a bit like going on your first date if you know; don't talk about yourself, that's just boring. Ask him or her about themselves. And try to extract from them some information, get them talking about their favorite subject- which is themselves. Create that connection, then tell them what you want to accomplish, and let them help you that way.

And remember, it's a two way exchange, they will get as much out of you as you will get out of them, if you're a good conversationalist. And that I'm afraid is, I think, a real problem in India. Kids just aren't used to doing that. Maybe something Binod,you would know more than I do, maybe something about a sort of more hierarchical culture that addressing your elders and having that sort of connection is really difficult. But that's what's got to be overcome.

I mean, absolutely nailed it right, Paul. Everyone likes to be asked about themselves and they will open up then. But it's simple, and it's intuitive and logical, but so difficult to implement for many people who just can't, I mean, they are perfectly fine navigating through a grueling exam for years. But to strike up a conversation with a stranger is something beyond their capabilities.

Well, and that was linking into a couple of the other questions you've asked about the charter. I think that’s the other thing that I regret; we have attracted too many technically minded people into the profession, people for whom sitting an exam is second nature. And they can do that all day long. But who actually can't, and don't want to hold a conversation with someone and get to know somebody. Because the higher up an organization you go, the more those social skills are necessary. You've got to manage people, how do you manage people, unless you're interested in them? And like them? How do you sell something unless you're interested in people and like them? How do you design strategy for a company, unless you have some form of understanding of the way that the world works?

I mean, how many people have you and I met in our career, who have a brilliant idea, and think that the idea itself should sell itself. But they're so brilliant, (and they are)...that they thought of this great thing, and therefore everyone in the world should want to buy it, and they've missed the most important factor- “You can have as brilliant an idea as you like, but if no one wants it, if you can't bring it to market, if you can't sell it, you will lose a lot of money; and the world is littered with geniuses who have very poor business skills”.

I mean, Paul, you're a chartered accountant, and so am I. And during my articleship, and my chartered accountancy career, (and I'm sure you've seen that as well) soft skills were always a big gap in passouts. And I think that's true for almost every certification; with a CPA, or CA or CFA, because you lack that collegial experience, the mentorship, the teamwork. You're sitting, waiting in your room somewhere isolated, and studying. I wonder how the governing bodies like CFA Institute, or anybody else would solve that. It's a problem that needs to be cracked, but it's quite a tough one to crack.

Well, I mean, in my last couple of years at the Institute, we were doing a lot of soft skills training as part of the continuing professional education conversation. But it is hard, as you say. I mean, how do you? You're 22 years old, your character has kind of formed. And how do you teach someone who's 22, to be someone other than who they are? Really, it's quite hard. So, there is something you can do. And there are lots of tips and tricks you can give people to do that.

But I also think that one of the things that we ought to do as professions is to attract a much broader (and I know you want to ask me about diversity)...a much broader spread of people in it. I must have done 800 University visits when I was in my seven years at CFA. I must have done about 800 University visits, and never once did I address a faculty outside of the finance or economics stream. I never went to see the musicologists, I never went to see the historians or the philosophers, or the English majors or the language or the linguistics people, never once. And so what we did was we attracted into the profession, people who were very technically minded.

And we have forgotten that at the end of the day, at the end of every financial transaction is a person. And if you can't empathize with that person, if you can't understand what it is that they need from you, how on earth are we going to be able to serve them properly and deliver the products to them that they actually want? And I think that, in a nutshell, is what's gone wrong with finance over the last 20 or 30 years, that it's become a very enclosed environment. Bunch of really super smart people, doing things that really amuse themselves and enrich themselves, but not really geared towards the person in the street.

We've come to that point, which I know is close to your heart.Moving on from the soft skills gap to the diversity gap or the gender gap, I mean, you have noted previously in your speeches that the industry, the asset management industry, the finance industry as a whole, face the diversity problem. Yes, the CFA Institute board is gender diverse, and that's just a tiny drop, a tiny step now, in terms of female CFA charterholders. Definitely, in terms of female CFA candidates that I've seen in my classes, we have not really moved the needle. I mean, only about 1%, I think, of CFA charterholders globally, are women.

I know it's about...no, no, it's much better than that. It's about 16-17%.

16%. Sorry, 16%. Yes. Although research has shown that women often make better CFOs and equity analysts than their male counterparts for a host of reasons. I mean, you've managed large, diverse teams at work over the last many decades. I have two questions here. One is, what do you think are the factors of nature and nurture that you've seen that are holding women back in their career in investing?

Well, firstly, I always like to...when we're on to gender diversity, I always like to start with the comment that ‘having gender balance in an organization, first and foremost, is fair’. And I think there are lots of arguments (I'll go on to say) as to why it's important. But first and foremost, it's fair that men and women should have an equal crack at an opportunity. And I think that's an important thing to say, firstly.

Secondly, if you think about life in general, when you're dealing with complexity, you need different viewpoints to be able to resolve challenges that you face. And that's the big intellectual argument for diversity. You just think about that in a political sense, if you're trying to solve a political challenge such as spreading out wealth in society; one of the big challenges; or healthcare or something like that, you need views from all sorts of different parts of society to be able to resolve those problems. And finances are no different. We have complicated problems that we're faced with. And we need diverse teams...social background, gender, educational background, to be able to resolve them properly. So that's the main argument for diversity.

The final argument, which is just a basic, practical one, is that 50% of the clients out there are women, by definition, and you know, if we wish to build a business, why are we ignoring 50%? Or why are we under serving, rather 50% of our client base, who may prefer not in all cases, by any means, but who may prefer to be dealt with by someone who's more empathetic towards their particular life experiences? So, I think for those three reasons, gender diversity is really, really important.

Nurture over nature- I have no doubt in my own mind, that is a question of nurture, not nature. Women are just as equipped as men are, to be financial analysts. They may approach the problems differently, they may have different risk appetites, different propensities for managing people, different ways of looking at the world, that they're certainly not going to be the same CIO, that a man is going to be. But it's not better or worse, it's just different. And they'll have different outcomes. But just as valid outcomes, as men will have.

The challenge for women is the ones that we all know about. There's a lot of bias, both conscious and unconscious, in the way that the world works. Men like to recruit other men, they're more comfortable (with it), than doing it any other way. Men tend to have a bias when it comes to promotion. They tend to have a bias when it comes to paying women. All of those things are against women at the hiring process, during their career, and after their career. And so, those are the things that hold women back. Absolutely not their inherent abilities. And I speak as I have five sisters, and I have three daughters. So I know about what I speak. But there's nothing that women can't do, that men can, intellectually; that I have absolutely no doubt about. And my sisters and my daughters would kill me if I said anything differently, and they would be right to.

I suspect you have been biased or dominated by your sisters and your daughters and your wife.

Do I look as if I'm easily dominated?

The second question, Paul, related to this was, what are three practical steps you think companies can take to improve women's participation in investing?

Paul: Well, I'm gonna throw in a controversial one at the end.

I think the first two are pretty obvious, which are hiring practices and promotion and pay practices. I think companies need to think much more carefully about blind interviewing, about the way that they are setting up their hiring. Is it only men who are doing the hiring? Or are less women doing the hiring, when it comes to pay and promotion? Are you doing the analytical work behind that, that you need to do? Are you promoting more men than women in terms of your overall workforce? Are you paying men and women the same bonus or the same incentive for the same job? What's your gender pay gap? There's all sorts of very simple metrics you can run around hiring practices, and promotional pay practices that will tell you whether there is inherent bias within your system. So those are two very simple things that all businesses should do, and should be honest about and should try and correct. And obviously, alongside that goes a lot of training to help managers recognize the way that they are acting.

The third thing that we can all do, is quotas. Now, that's perhaps a very unfashionable thing to say. But I've been at this a long time. And I don't think training, more awareness at the end of the day, moves the needle; or it doesn't move the needle in our lifetimes. The only thing that is going to change is where you force change. So as you know, a lot of countries have now mandated percentages of women on boards, and things of that nature. And I think every company should be thinking very carefully about quotas within it. Now, you mentioned the CFA having a gender diverse board. The reason we got there was the president of the CFA, a guy called Bob Jenkins. Half a dozen years ago, Bob put a quota in a three year quota, to say, and I can't remember exactly what it was, but year one, we were going to have 20% women on the board, year two we were going to have 30% women on the board, year three, we got to be 50-50. And we voted on it, we agreed and we did it. And that's the only way it would have happened.

If we set ourselves the metric to do it; and now you've got a flywheel effect, where it's obvious that's what you need to maintain. And the board is a lot better for it as well. I hasten to add, there's less sort of macho posturing and nonsense, antler locking amongst the board. There's much more constructive conversation. It's a much more diverse and rich debate in all senses. I think quotas are important, I think quotas at every stage, not just hiring quotas, you've got to make sure that as you go through an organization, all grades and obviously that takes many, many years, all grades in the organization are properly represented.

Yes, those companies have kind of got 50-50 at the start, but you'll see that women leave organizations much more than men do. And obviously that's partly maternity and all of those issues. So you've got to think about how you keep women in your company? How do you incentivize them? How do you bring them back, perhaps after they've had a child? How do you keep them motivated? How do you keep them believing that they're getting a fair shake within your organization? And I think quotas are one way of doing it.

Very controversial. But as I say, I'm long in the tooth. I've seen this in practice. It does work. It's not the right way, but I think to start things off, to kick things off, you've got to have quotas, and then hopefully down the line one can relax that.

Yes. I mean, affirmative action is always controversial, isn't it? And, like someone said, ‘“Desperate situations require desperate remedies”. That does work.

And I think in the emerging world, the developing world, where obviously there are so many other barriers to women- educational barriers, societal barriers, often anyway; it's even more important that there is affirmative action. It's very hard to change society's thinking without that.

And we do it in other areas. I mean, my favorite example is smoking. We knew it was bad for us, for decades. But we still...when we had a drink in our hands, we still had a cigarette in the other hand. And it was only when the government said, “No, you can't go into a bar or whatever and smoke”, that we changed our habits. But we changed them overnight. And that's affirmative action. Pollution is another one. You know, there's lots of affirmative action. So why do we worry about it, in gender? You know, I think we have to ask ourselves that question.

Well, the role of finance in society as a whole and of course, this recent conversation on gender diversity and women's participation neatly segues into a critical topic of sustainable finance, a theme close to your heart.

Yes, very much.

You and two other co founders set up Sustain Finance recently as a thought leadership platform on sustainability in finance. Now, of course, I'm going to throw a couple of curveballs here, Paul.

I thought it'd be too easy so far.

For the longest time, some of the most profitable sectors and companies to invest in have been in alcohol and tobacco and fossil fuels and weapons; and this will probably continue for decades. So would following sustainable financing make sense by limiting your universe of investable sectors, not just reducing your return, but also increasing your risk due to lack of diversification? And fundamentally, and this is the nub of the question (isn't it?): are profits and purpose compatible?

Yeah, well, that's, that's great. There's so much to talk about there.

Firstly, the shameless plug on www.sustainfinance.org, that's the website of our initiative, which is all about trying to connect finance to a sense of purpose. To remember that as finance professionals, our job is not just to enrich ourselves, that's a byproduct. The actual job is to try to make society wealthier, and we get wealthy as a result of that. And I can’t think how many of our colleagues over the years have forgotten that basic, basic truth. And I think what you say in the short run is absolutely right, as sectors fall out of fashion, whether it's tobacco or arms or anything else. Obviously, under economic theory, the returns on those sectors have to rise, because they still need capital, they still need to attract investors. So you would have done very well, as you pointed out by investing in tobacco over the last few years, for instance.

So, there are two other things, I think, that need to be said alongside that. The first is obviously a rather more nebulous view. Do you think that you, as a business, should be investing solely for return? Or is there a broader set of objectives, not just financial return objectives, but societal objectives that can be measured in other ways? And obviously, we're struggling with that as a concept. How do you value those societal goods? And by definition, how do you value the negative externalities of things like tobacco?

And so for me, that leads to the second part of this question, really, which is government. I think too often, the way that the sustainability debate is argued, is to place all of the responsibility for resolving it on asset owners and asset managers. Asset owners and asset managers are conflicted. Obviously, we have to deliver the best return for our clients in the way that society measures that return. So, the government has to help us change the way that society measures return. And it can do that not just in sort of a conversational way, it can do that through regulation and through taxation. And that I believe is what we're seeing in the world at the moment. Whether it's a carbon tax or reinvestment credits for investing in green projects, whatever it happens to be, what we've got now is a partner in government that is trying to nudge companies through incentives and punishments in the right direction. And that helps the asset management company move in the right way.

Finally, I think more and more our investors are younger people, by definition, they are, even if you're 40 years of age, you've had 30 years now of being exposed to the ESG debate. I was actually listening to a program on the radio yesterday in London, where Maggie Thatcher was talking about this in 1989, a really prescient speech she gave to the UN in 1989, talking about the collapse in the environment, 1989. Margaret Thatcher as well, you would think…

Margaret Thatcher of all people!

Margaret Thatcher, of all people exactly right. And how shocked her political party, which obviously was the right wing party in the UK, was to hear Margaret Thatcher talk about it. But remember, Margaret Thatcher was a trained chemist, she was a scientist. And so she understood environmental degradation. And in 1989, she stood in front of the UN, and she spoke about it.

So if you're 40 years of age, you've lived with this, you're now the ideal client. And what you want from your asset manager is a sense of purpose. And so, that more and more is the push from the client side that is coming as well, that will also help capital be properly deployed, where we are seeing more and more client pressure for asset managers to really walk the talk, to express what they mean by their purpose, and ask asset management companies to have a statement of purpose, and then to drive that purpose through everything that they do as an organization. It's difficult, because there is a conflict at this stage in the short run between investment return possibly, and trying to make sure that you run an ESG business. But that, I think, will be resolved over time, as government regulation and investment opportunities catch up with the way that society is thinking. So I think we do have a short run mismatch. And that's, I think, the other thing, but climate change, and some of the other things, social change, these are really long, long, long run issues, whereas most people look at their portfolio on a day by day basis. So there's an obvious mismatch in terms of, of expectation there, which is a real problem.

So let's assume that I've been convinced of, or rather compelled by my guilt, to put money into a sustainable fund or sustainable listed company. Now, the problem I see here, Paul, is we still don't have one generally accepted set of anything, whether it is criteria, definitions, accredited courses, or reporting standards or data providers or auditing standards or you know, or a standard set of like, say the International Financial Reporting Standards and the IASB. And this is, of course, natural, given the nascent state of the field, but it can, among others, create confusion in investors’ minds, make it harder for investors to compare and contrast and make it easier for companies to play regulatory arbitrage, and, and make cross border listings difficult. So I've got two questions here, and I'm sure you have thought about this. One is, what are the three criteria on the top of your mind, that a sustainability oriented investor should use to select a fund or a company?

Yeah. Well, I think that's a great question. I think it's one that all investors should be thinking deeply about.

The first, I touched upon earlier, is the investment manager you're appointing, aligned throughout its organization with your principles? So how do you assure yourself of that? Well, the first thing that you do is you look at their mission, vision, and above all, their purpose statement as an organization. Have they got one? Have they been able to articulate what it is that they're trying to do with your investments? So more and more, you see that, that forward thinking asset management companies are coming up with purpose statements that explain how their stewardship of their client assets are going to be run, and how they are going to comply, whether it's the UN PRI or whether it's some other form of ESG criteria that they may have. So that's very important. Do they have a purpose statement?

And then secondly, have they aligned their organization with it? Have they dedicated the right resources? Do they have HR policies? How are they voting their proxies, for instance, at shareholder meetings, companies that they own? Are they consistent in what they're doing?

Which leads on to the final point- have they dedicated the right resources to this conversation? And when you look at the people, for instance, who are behind the proxy voting world, how many people do they really have in that? If you're a major group, and you only have two or three people in the proxy voting services team, then you know that they're not really aligning the organization with their stated sense of purpose.

So I think those three tips are the way to look at it. Do they have a purpose? Have they dedicated the resource? Are they walking the talk? Really, those are the three things that you should look for as an investor.

And my second question here would be- what do you see happening over the next, say, a decade or so regarding industry standards and regulation?

Well, I think the first thing to say is that there's a huge amount of work all over the world in terms of this central challenge, that you say, you've articulated; that there aren't really any coherent standards. And that it's very difficult, actually, to put those standards together. But there is a lot of work, whether it's the Sustainable Accounting Standards Board, whether it's the IRRC, the International integrated reporting Council, whether it's the EU, Hong Kong, doing something in their own world. All of these various regulatory bodies of different levels are trying to standardize the playing field, if you like, level the playing field. Have they succeeded? Very, definitely not. Will they succeed? I suspect not. At the end of the day, I think the problem is too slippery. But the attempt is important. And I think that's the most important thing.

And I think, the thing that we all need to say is that, “We shouldn't let perfection be the enemy of the good, really. But in this, too many asset managers, I think, use the challenge of non standard ESG reporting as an excuse for not doing anything. And that's just lazy, really, more than anything else. And it's also counterintuitive as an asset manager. Because what an asset manager is trying to do, is to look for areas where reporting is incomplete. You know, if reporting was perfect, you wouldn't need highly trained people like us. Our job is to look at incomplete reporting, and to fill in the gaps, and to make intuitive and well researched judgments on whether that company is or isn't doing what they say they're doing, and whether it's actually working or not. So we shouldn't allow paucity of information or incomplete information to hold ourselves back, we should work with what we've got, we should accept that this is going to evolve over the next 10 years and improve, but it will be a push and a pull. Part of it will be government, part of it will be improved regulatory standards, but there'll always be a gap. And that's the gap that we need to step into. And make our own, really.

So, that's what I expect to happen. I think there are lots and lots of challenges. As we've just said, it's really, really difficult to look at ESG, particularly on the environment side, because everybody sees something different. Everybody's interpretation of an environmental good, is different depending on whether you're a sort of a hard core environmentalist, or someone who just wants to see progress. Those two views are very, very different in terms of the way that you look at things, whether you believe that you can do damage and then restore, that's a viable way forward or whether you should do no damage at the start.

So there's lots of different challenges here. But I think it's the engagement that's important. It's the conversation that's important. And it's moving society towards consensus. That's key. That's the point of our Think Tank. It's not about saying you should do this or you shouldn't do that. It's about convening a forum where people can write and hold events and exchange ideas and hopefully move us in the direction that we want to go. But that's a long term thing. I'm a committed optimist.

When I look at the ESG world, the technology exists. The problem is deploying it and distributing it. The technology, whether it's battery technology, whether it's sucking carbon out of the air, or whatever it is that you're particularly worried about, the technology is there. It's not necessarily to scale yet, it's too expensive. So it's got to be deployed properly. And it's got to be distributed into the areas of the world that need it, which often are the poorer parts of the world. So there are challenges there. But the technology does exist. I strongly believe that we will sort it out. But it's a combination of society push, regulatory push, and asset owners and asset managers having the sense of commitment and purpose to what they're doing to move the industry in the right direction.

All right. Now, Paul, there's something called greenwashing, which is when an organization presents itself as more environment-friendly than it actually is, and greenwashing ranks among the most widely practiced and egregious abuses in ESG Investing. Can you give three examples of, for lack of a better word, abuses of ESG? So the investors are aware of the red flags in this nascent industry?

Yeah, for sure, I'm not sure I'd call them abuses.

I mean, I think, as I said earlier, in the cast, that this is an evolving world. And necessarily as a result of that, there are interpretations that aren't necessarily common to everybody. I'm obviously trying to be as diplomatic as possible. It's more like trying to look for things that might be confusing for you or might lead you to look at a company more favorably in an ESG context, than perhaps you should.

So, I would look at things like well, when someone says they're going to be net zero, for instance, what does that actually mean? Look at what the small print, if you like, is in that pledge? Do they mean that they are investing to prevent any carbon emission? Or are they investing to restore balance by offsetting carbon emissions through some carbon positive approach. And you need to decide as an investor, which one of those two things you need to focus on. So I think net zero is challenging. You need to poke into that when someone says, and that's obviously a very fashionable thing. Governments’ talking about net zero, the car industry talking about net zero. What do they really mean by that? So I think that's important.

I think supply chains, for me, as an investment analyst, I think that's the most awkward, but perhaps the most interesting part of the ESG debate. Whether it's on the environment, on the social side, or on the governance side, what are people doing to monitor and improve their supply chains, which, obviously, by definition, usually are not companies that they control or activities that they control? These are third party activities. So it's very, very difficult. But what are you doing to really ensure that the components of your products that are manufactured, whether those are human, or whether those are material; what are you doing to make sure that those two are living up to the values that you espouse as a business, whatever those values happen to be? And I think that's a very rich area. Because it's complicated, but because it has so many tentacles, really, that reach into everything. And we've seen that with some very hot topics like cotton production in Xinjiang, for instance, and other types of activity that are going on, where companies are deciding that they're not going to source products from various parts of the world for all sorts of different reasons. Some good, some bad, and some gray and some not gray.

I mean, you think about child labor, for instance. And it's all very well to oppose child labor. But if all you're doing in a developing country is removing a source of income for a family, well, how do you expect them to replace that income unless you're doing something on the other side to either promote children's education through paying parents a stipend for sending their children to school. But you have to replace that income in some fashion or other. You can't just take it away. So there's this. It’s a very difficult, nuanced debate as far as supply chains are concerned. And I think that's where we're going to make most progress over the next few years, because it just reaches into every country in every corner of society.

Final thing on a more prosaic level, in green bonds. I think those are an increasing area of financing for a lot of companies and a lot of countries around the world. But I think they're all fraught with difficulties. Are those green bonds being used to invest in specific companies as specific projects? Or are they more generally used by the company? If so, how much are the proceeds of a bond issuance really going to where you think that they're going. And I think that's going to be a debate as well.

So those are the three areas I'd look at: net zero supply chains, green financing, green bond financing, as areas where any investor needs to sort of sit up and pay more attention to corporate pronouncements and governmental pronouncements.

Let's now talk about a platform that both you and I have been involved in actively, and yourself especially, at a much more senior level for a much longer period, which is CFA Institute. And I talk specifically about your role as president and CEO of CFA Institute from 2015 to 2019. And when I saw you in action, I thought your leadership at CFA institute was exceptional for the pace and the impact. Not the least, because you were, I think, at ten different places at the same time. And I don’t know how you managed that feat of being at several places, but it was refreshing to see a slow moving bureaucratic monolith, like the CFA Institute, take the initiative for change.

Such an impressive feat because trying to change something like CFA Institute is like trying to turn a supertanker as opposed to a dinghy. And, as you mentioned earlier, significant change is quite difficult for most people, because they are used to the status quo, they are used to a certain way of working, people often worry about loss of power and prestige and privileges. And usually when you try to make effective changes in a deep rooted mindset, people usually resist. So I have two questions here. One was, what were the three top challenges trying to bring change to such a conservative organization?

I hate that question. You have to sort of think of three things that you did when obviously you did hundreds of different things. But thank you, thank you very much for your very kind words, which I'm not sure are deserved.

I think really, when things go back to the Institute, the first thing I would say is that I was dealt really good cards in that. We had superbly talented, motivated staff, and super talented motivated people like yourself, volunteers. So our workforce weren't just people who worked for us, we had 1000s of volunteers around the world, such as yourself, who gave their labor for free. So we had this amazing human team, if you like, of super talented, super motivated people. So I had that to work with. We had a wonderful global footprint, as you know, as you talked about, and we had a market leading product. So you know, that wasn't a bad position, or a bad company to be CEO of.

But what we were, as you say, was a slightly sclerotic, a supertanker, slow moving, a bit complacent, perhaps a bit stuck in its ways, in a world that was moving quickly.

So my job really was not to throw everything away and start again, I'm not that type of a CEO, I wasn't that type of a CEO. My job was to fine tune, something that was already working. And so what would I say were the three things that really were challenges and things that I tried to focus on?

The first was really sort of going back to basics, thinking about the vision of the organization. I didn't rewrite the vision, we had one, we just weren't doing it. And so that was that the first thing was to sort of look at ourselves and sort of accept that a lot of what we were doing was off vision. And a lot of what we were doing wasn't really as calibrated as it could have been to deliver on the vision, which obviously, is bringing financial education to financial professionals effectively, helping them do their jobs better and to be more ethical whilst they were doing it. And so that was the first thing to accept that the vision was great, and to accept that we weren't complying with it, and how could we tune our activities better towards achieving that vision.

And then the second thing any CEO has to do is that once you've decided what it is that you want to do, you've got to go out there and tell people. And it's not just internal people. It's your stakeholders. So, it's your clients, it's your service providers, it's your suppliers, it's your volunteers, you've got to communicate it, and you've got to get them. The hardest part is you've got to get them to buy into what you're saying. So that really, I think, was the part where as you said, the shoe leather came in, if you like it, you can't convince people of what you're trying to do if you don't go and see them. It's a very old fashioned concept. If I'm going to try and tell you that, we're going to change course slightly, and I need your help in that, which is the key message, I need you to help me change course, how can I do that over a zoom call, really? It's much better to do it face to face; it's much better to do it in person. You can also reach more people in a more personal way.

So, that communication was the central part. And that's when you're running a global organization. Obviously, we had staff in eight or nine locations around the world, we had volunteers and society members and candidates in well over 100 countries around the world. So trying to try to get to all of those people and influence them is tough. Obviously I didn't do it all on my own. I had lots of lots of very, very good people to help me with that. But unless you've got the energy, unless you've got the commitment to do that, you're always going to fall short. Fortunately, I'm very lucky in that I have abundant energy and a huge desire to see the world. So the job was tailor made for me as far as I was concerned.

And then rather presumably, the third thing I would say is, as you kind of indicated, the technology in the organization was very poor at every level. Not just in terms, most obviously, of holding the exam, but also internally, the technology was poor. And how did we revamp that, and that's led, obviously, an initiative started under me, but the current leadership is very definitely delivering on changing the way that the exam looks and feels is delivered, and is graded, and score that was absolutely important.

So those are the three things, vision, communication, technology. Really.

I'm sure it sounds very easy, but I'm sure in your characteristic humility, there are a lot of other things that happened, which, which you're not talking about. But let me ask you, how exactly did you make it happen? Because I strongly suspect that embedded in your strategies, the things you mentioned, are some very useful lessons in leadership and change management.

Well, yes, there are.

I mean, the hardest thing in life in a business context is to stop doing things that you shouldn't be doing. Because the thing that you're trying to stop usually is a good thing. No one's no one's deliberately wasting corporate resources, if you like. They just may be doing something that isn't tuned in with the overall vision. And as a corporation, you've only got so much resources. You can't do everything. You can't boil the ocean as it were. You have to decide on what's most important, and then to focus the organization around that. So, the hardest part is to stop doing things that are off mission. And obviously that's code for saying some people have to be let go. And that's a hard message. And that's a hard thing to do, particularly in a not for profit, where everybody is very well motivated. As I said, no one's doing something for poor reasons. And there's always a reason for doing things, but to try and get that message through. So, that's important.

So communication of that energy and enthusiasm, getting that buy-in. Those are all really, really important leadership lessons. You've got to have absolute faith and belief in what you're trying to do, because there will be hard decisions to take. And if you're not constantly checking yourself and going back to that vision and mission and saying, “Am I really focusing the organization on delivering that vision? Or am I taking soft decisions because I don't want to deal with a human problem”? Usually, you don't want to deal with a human problem, then that's where you get into a slippery slope. And the organization, if you make poor decisions like that, the organization loses momentum and loses focus. And that's really something as a leader, that you keep having to keep yourself up to the mark on.

Am I really pushing through with the talk? Really, it's easy to talk, it's easy to intellectualize what you're trying to do. But to deliver on it means you've got to make some hard decisions, and you've got to follow through on them. And I think that's my other leadership lesson. It is that you should always lead from the front. And there's always dirty work to be done. And if there is dirty work to be done, you're the person who needs to do it. Never delegate the difficult stuff, always do that in person. People deserve that of you. And as a leader, you need to show that you lead from the front. And you do the hard part, because you're going to expect people who work for you to do difficult things as well. And you need to show them that you're prepared to do the hard things.

The final thing is that you were kind enough to mention the word ‘humility’. I think that comes with age a little bit. We all think we're God's gift to creation, when we're in our late teens, early 20s. And I guess the older one gets, the more one realizes just how incompetent one is and how lacking one is in so many regards, and how prone to mistake. And so I think that's very difficult as a leader as well, because people do look up to you. And they do expect you to be almost infallible. And you're not. And so learning how to apologize for things that go wrong in an organization, without demoralizing the organization, without significantly damaging your leadership is very, very hard to do.

Often people take an apology as a sign of weakness when it's not, it's a sign of strength, if you do it in the right way. That's a hard thing, that's a communication gift is to be able to say, “Look, I screwed up. And this was wrong, we need to change direction and we need to do something slightly different”. And to maintain momentum and to maintain people's belief in you as a leader, whilst accepting that you've made mistakes, is a really hard trick to do. And, and that I think is something that all leaders need to think about, all politicians definitely need to think about. How do you apologize? Because you know, we're not infallible?

This neatly segues to my next question, because you not only had a great leadership experience and made an impact, but you could also be adept at timing. You proved to be a master at timing, because you’ve left CFA Institute in September 2019 at the end of your term. And I must say, the timing of your exit was impeccable, because CFA institute is arguably going through the toughest time in its 60-year existence. It's been one issue after another. I mean, you must have read the papers, transitioning to computer based exams initially, then many locations are cancelled around the world, exams delayed in multiple locations, issues with non refundable fees, recent abysmal pass rates for level one and level two, adverse publicity in the media etc. What are the three bits of advice you would give your successor Margaret Franklin?

Right. Well, firstly, to say that my timing was impeccable; I jumped ship and handed Marg the most awful set of cards, for her to play, and I've lost a lot of sleep over that. I didn't obviously know what was about to happen. I think there's a lesson there by the way, that you should always...I said, when I joined the CFA, when I was going to leave, and I stuck to that. And so, I reaped the reward of not hanging on for too long. Because the longer you last in a position, the more likely something awful is going to happen to you. That's just the way that the world works. And so, doing what you say and leaving after a fixed period of time is a good, good lesson to learn.

So, the first thing is that Marg was dealt an awful set of cards. And I thank my stars every day of the year, that I didn't hang on, to put up with this awful pandemic. And some of the things that she's had to put up with, I would not. I'm not the sort of person, so I'm not going to give you anything here, but I'm not the sort of person who leaves an organization, and then haunts that organization, by criticizing from the stands. I wouldn't do it to my kids, if they were playing sports.I'm not one of those parents who stand on the sidelines, screaming at them to do better. I'm someone who stands on the sidelines and cheers them on. So I wish Marg nothing but good things. And the only piece of advice I would presume to give her was not to listen to yesterday's man, go her own way, to have confidence in what she's doing, which I'm sure she does, and to keep pushing on the path that she has outlined for herself.

Oh, wait, I was looking forward to some juicy sound bites there Paul. You’ve let me down with athump. But maybe you can make up in the answer to my next question, which is about China and Hong Kong. Because you haven't lived in Hong Kong for the past twenty three years. And so I hope you don't mind if I regard you as a wise China hand, as they used to say in those days. And hence, I must ask you this about Chinese tech stocks, particularly, which have been in the news a lot lately. I mean, two questions that come to my mind is the freefall inthe prices of large cap stocks like Alibaba and Tencent over? And secondly, probably more importantly, what is your advice for anyone planning to invest in Chinese equities? Because it sounds like a dreadfully risky, opaque, volatile market?

Well, I think it's all of those things. Yes, I mean, you have to understand in China that obviously government influence is paramount, and that if you are unable to understand what the government is doing, or is about to do, but most importantly, whether that's on the regulatory side, or on the fiscal stimulus side or the monetary stimulus side, then you're going to get caught short, because the Chinese market primarily is driven by government action, rather than necessarily by the underlying four fundamentals that we would teach at the CFA Institute. So that's just a general challenge.

So, to answer the second part of your question, first, is what you need to do is to be with colleagues or third party managers who have boots on the ground, and who are plugged in and connected with, obviously, properly connected as opposed to improperly connected with what's going on at the government level. Do I think that the worst is over? I suspect in tech stocks, it probably is. But what we've got is a rolling series of government actions on all sorts of different industries. So it started with a tech stock, then went into education stocks, now is in ride sharing apps and other things. And we'll continue I think, for a little while, yes. I mean, what's happening in China is that as Xi Jinping, as President Xi has said, “It's about trying to make sure that wealth is more fairly spread throughout the country”.

Now, in a Western sense, we try to do that through fiscal policy and through other measures. The Chinese system is different. They do it through government policy, and that upsets us in the West, but it's just a different methodology. And so that's the important part to remember is that it's not good or bad. It's just different in the way that China accomplishes an end that we would all ascribe to, which is how do we make sure that the vast wealth creation that's gone on over the last 20 or 30 years in China benefits all members of society, rather than a few people disproportionately. So the end goal is actually a very worthy one. The methods are not ours in the West, but that doesn't mean they're not the right methods. So that's what you got to hang on to.

And I think, overall, what you have to ask yourself is, are you a China bull or a China bear? And I don't want to persuade anyone of either dimension. It's such an immensely complicated conversation that obviously involves politics as well as economics. I'm a China bull, I make no apology for that. I believe in China's long term rise in exactly the same way as I believe in India's long term rise. It's about demographics, different demographics. China to India, India has actually much more positive demographics than China does. But it's about the weight of numbers, and it's about the growth of the economy in general, and the GDP that's adding to world wealth.

And I think one of the things that we should all do, particularly people in the developed West should do, is to stand back and say, “Well, what do we wish for here? Do we really want China to succeed? Or do we want China to fail”? Because if it's the latter, we should pause for thought. Because if China fails, we all fail. What other engines of growth are there in the world today? If they're not being propelled primarily by Chinese investment and Chinese consumption? And I think that's something that’s in the West, when we're so negative about China. We need to ask ourselves a few hard questions about, where does that lead, ultimately? And don't we want China to succeed, in the same way that we should all want India to succeed? Because healthy, vibrant economies in India or China are going to allow us in the West to maintain our lifestyles, basically. Otherwise, we're going to have to go out and work. And we clearly don't want to do that. So let's hope that China and India succeed.

And I personally believe that they will, both countries will, and that they will go from economic strength to strength. But we need to be a little bit more understanding about the differences in the system, we need to be much more sensible as investors. The Chinese capital markets do not work along Western lines. President Xi has been absolutely explicit in saying that, and so why do we still get shocked when things happen?

Interesting.Well, all good things must come to an end. And this has been a fascinating interview, probably the longest podcast interview ever. I've enjoyed every moment of it. But before I let you go, I must ask you for some more bits of wisdom from you. And that is, what are your three top tips for a youngster planning to enter investment management?

Okay, well, I'll give this go. You did warn me about this question. So I did have to think about it. I hate these sort of three top top tip things.

But the first thing is to say, I think, to everybody, go back to the thing that I said at the start that there's a long race, and it's not where you start that counts, it's where you finish, that's what's most important. And so, it's getting your first foot upon the ladder, that's important in the business, hopefully, that you want to be in. Don’t worry so much if you can't get into...if you want to be at the front of the asset management process. Don't worry, if you can't get there to start with, get into an asset management business at whatever level in whatever capacity. If it's in the middle or the back office, and work your way forward to the front office. It's a long old race, you have lots to learn, you'll be better in the front office, if you have gone through the back office. So try and remember that it's not where you start in life that's important, it's where you finish. So, I think that's the first thing that I would say. I certainly did that. I started as an accountant, went into an asset management company in the back office and worked my way forward from the back office to the front office. So it's perfectly possible, it's still possible. You can do it if you'd navigate the organizations that you're in successfully.

Secondly, I think we've mentioned it many, many times during this podcast, never be afraid of change or uncertainty. And in the asset management world, it's not about being afraid of change and uncertainty, it's about embracing change and uncertainty. That's what depresses me more than anything else when I think about the asset management industry, as we seem to have forgotten that change and uncertainty is where we live. That's where the opportunity is. That's the good stuff. The more uncertainty there is out there, the more change there is out there, the more alpha we can generate. So we want to, actively, as asset managers, go to places, countries or industries, where reporting is poor, where people have 10 different views as to how something might work out. That's where we live. If you know everything, if you know what the future looks like, you're never going to make an investment return that's above the rate of cash. So, always be, in your mindset, if you want to be a good asset manager, always in your mindset, embrace change and embrace uncertainty. And that's obviously a lesson for life as well, that these are good things, these are dynamics that propel humankind forward, and you want to be on the right side of them, you want to be challenging yourself to take advantage of change and uncertainty at all times professionally and personally.

The final thing, which connects back to my wanderlust, if you like, is go see for yourself. I think the modern world is set up in a way that we believe that we can, and obviously COVID has contributed to this as well, we believe we can do everything sitting behind a screen. And the types of technical people, as we talked earlier, that we've sucked into the investment management industry are disposed towards that view anyway, thatthey can see everything that they need to see on a Bloomberg screen or on a YouTube video or some other streaming service. But it's not true. Because you're seeing a filtered view of life, you're seeing only what people want you to see, you're not necessarily seeing the whole picture. And the one thing that I can absolutely assure you of, is that when you go and visit a company, or when you go and visit a country, your view of that company or country will be radically different to the one that you have come to, through your desktop research. There is no substitute for going to see for yourself.

So those are my three tips: ‘It's not where you start, It's where you finish that counts’; ‘never be afraid of change and uncertainty, those are your opportunities’, and ‘go see for yourself’.

I think the one that connected with me the most was, ‘It’s where you finished that counts, not where you start’. Because that sort of talks about the journey, isn't it, not just the destination?

And yeah, I think that's right. And it’s also about enjoying that journey as well. But you know, that's what's important about life, is that it's always changing. It's a journey, it is a process. I know, it's a cliche, but that's important. And I think the other thing to say is...I've always said it to my kids...when you're choosing your career, go back to that idea of planning and things…”very few of us really have passion, in terms of...I really want to be this thing. Most of us stumble along into things that are okay...we're happy with them, they're okay, they're so. But if you take that and you say that 99% of us are that way inclined, then for heaven's sake, be the boss. Because it's much more fun being the boss than it is being one of the foot soldiers. And I always said that to my kids, “That's why you work hard, is because any job is much more fun when you're at the top than when you're halfway down the organization or at the bottom of the organization”. So it's, as I say, “it's where you finish that counts, not where you start”.

Absolutely, I mean, so much insight, so much inspiration in this delightful interview, which I hope youngsters would listen very carefully to and try to implement the many, many tips in terms of career and just looking at life as well. And thank you so much, Paul Smith for taking the time from your busy schedule to prepare for and deliver and participate in this podcast interview. And I hope your ventures especially in sustainability will gain faster traction and more people are aligned with your view and vision about how to roll that out and make an impact. And that finance can be a force of good in the world.

Thank you. I hope so too. But thank you for having me as well. It's been a huge pleasure. I've enjoyed talking about my favorite topic, which is me.

Thank you, Paul. Thank you once again.

Thank you, Binod. Bye bye.

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This podcast is brought to you by the real finance mentor. Thank you so much for listening and I really hope you found it insightful and inspirational. If you did enjoy this episode, please drop us a review and spread the word. You should check out more exclusive content on therealfinancementor.com and my LinkedIn profile which is: Binod Shankar, FCA, CFA. Let’s keep in touch! Just add your name to the mailing list on therealfinancementor.com, and we’ll tell you about new episodes plus book reviews, upcoming events and blogs. Till the next time, onwards and upwards.

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Podcast EpisodeBinod ShankarOctober 25, 2021podcast, investment banking, CFA, Wall StreetComment

Episode 28: There is no substitute for the personal touch.

It is a huge pleasure and privilege to interview Paul, former President & CEO of CFA Institute, and someone I’ve known for several years.

I hope you enjoy listening to this scholar and gentleman as much as I did interviewing him.

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2020
THE REAL FINANCE MENTOR
by Binod Shankar

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