Enabling Talent for Intrapreneurship with Stephen Dover
Crafting a culture where corporate intrapreneurs thrive requires intentionality. Doing so in an international investment enterprise with $1.5 trillion under management takes a game-changer. Stephen Dover, the Chief Market Strategist and head of the Franklin Templeton Investment Institute, joins the HiPERleadership podcast to discuss the culture he built to enable a global team for success while dismantling the traditional corporate hierarchy.
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David Morris: Welcome to the HiPERleadership Podcast. I am your host David Morris, CEO and founder of HiPER Solutions. At HiPER Solutions, our mission is to bring positive change to the world. Leaders today are faced with unprecedented change; and yet, even the best leaders have had to toss out their standard playbook and think outside the box. Our intent with the HiPERleadership Podcast is to share best practices so that you, our listeners, can gain some actionable and practical approaches to your next big-bet endeavor. Today my guest is Stephen Dover, the Chief Market Strategist and head of the Franklin Templeton Investment Institute. Established in 1947, Franklin Templeton is a global investment firm with over 1300 investment professionals and $1.5 trillion in assets under management. Hi, Stephen. Thanks for joining us.
Stephen Dover: Thanks for having me, David. It's a pleasure to be here.
David Morris: Absolutely, and a pleasure to meet you, years back, and just see you take on so many different roles over the years as a real intrapreneur in a larger organization.
Stephen Dover: Well, thank you. And that's exactly how I see it, as intrapreneurship, and we'll talk about this as we move on; but I think that structuring your leadership style, as well as your organization, so that you have people that can be intrapreneurs within a bigger organization is really important.
David Morris: As we were talking recently about talent and this whole concept of what kind of environment to create when you have very creative talent, talk to me about when you are tapped on the shoulder to come in to that really key area of the organization, and how you evolved it.
Stephen Dover: We had a big division within the organization that was equity management, that for the previous 40 years had been managed by a really iconoclastic individual, well-known, who is now in his 80s. And at this time, to pass things on, you had a very hierarchical structure within that part of the organization; and my job was to reorganize that - it had some performance problems - and then also build that with other parts of the organization that had similar mandates. Some of the challenges were the people who have worked in this particular division have only worked for this one leader before and were very much looking upwards - of managing upwards - to him. I think there are just a few things that we tried to focus on; first of all, changing that attitude of managing up. So I would get questions like, you know, "What do I need to do for you," from employees; and I would just direct them, "Well, you're not working for me, you're working for the client." So we have to get, first, very clear objectives of where it is we're trying to go; and then we have to set out this combination of great compensation program and accountability. That seems minor, but I think it's really important to have clear objectives and accountability in their compensation; and then change that focus over to the client, rather than the myopic view of managing up to internal management. Complete reorganization: we went from having almost over 90 people in the division to 50 people in the division, while dramatically increasing the profitability; and most importantly, we improved the performance of the investment funds for our clients. [It was] considered a big success within the industry and within our company.
David Morris: Help us understand the distinction of asset management within financial services. You know, the type of talents needed in asset management; the type of environment; and again, how, through fewer people, you were able to achieve even more results given that vantage point.
Stephen Dover: So my career has been around the investment management part of the business: managing [and] overseeing investment decisions and investment people. And I always liken that to investing, as you said, talent -somewhat akin to managing a sports team or managing entertainment talent. Because if one of these portfolio managers leaves the organization, it's quite likely that the client and assets will leave with the managers. And anyone who's worked around portfolio managers know that they're kind of a quirky group of people, and you have to manage them in that way. Hierarchical management, in our opinion, really doesn't work well; and we're trying to have devolved management. We're a gargantuan organization - one and a half trillion dollars, as you mentioned - but we're trying to move that decision-making, especially in investment teams, down as close to the literal portfolio of the client as we can; and that's the challenge - to be, in essence, a small organization, or many small organizations, but somehow wrapping that up to be the bigger organization.
David Morris: In terms of talent, what are some of the environmental requirements that you have found from just exceptional talent? What do they want around them; what kind of support and air cover do they want; and what causes them to still sort of be in a larger organization and go off on their own? What do you need to provide for this type of talent?
Stephen Dover: I think probably the most important thing for investment management talent, or probably for any of that type of talent, is the right culture. Obviously, they want to make money; they have the potential; it's very high paying field; but that's not what primarily drives most of them. They want a culture in which they can set up their process, and really add value, and not be too constrained by having too much hierarchy or too many top-down systems. And so that's the balance. It's a huge group. It's almost 1000 portfolio managers and analysts, so we can't have them doing everything individually. Yet, at the same time, they need to be feeling like they're making individual decisions, and then being held accountable for those decisions.
David Morris: Is there a particular example of one of these portfolio managers that comes to mind who really did need a lot of independence; they had a lot of special requests; and you figured out a way to give them sort of freedom within whatever constraints? Because obviously, there's regulatory and you know, a certain process you need to maintain in a big organization. But again, this whole concept of creating that small entrepreneurial environment for one of these superstar talent - what you did, what stood out to you?
Stephen Dover: What stood out to me is a case study that I had 30 years ago when I was this graduate student at Wharton; and what I got from the case study is really very simple; and that is, when you start being a senior manager, you don't actually know exactly what your employees are doing, and you want to create an environment that they're very comfortable coming to you with problems or issues and not trying to manage up. My challenge was that I had employees in 17 different countries, and many of them were managing assets within the country for consumers within the country. So just by definition, I couldn't follow all of that. So it's very important with an employee - and I'm thinking particularly of an employee in a division we had in an emerging markets country - where we had a relationship that's kind of this fine balance between friendship and professionalism. They knew that when something came up, they could call me at any time, even if it had to be in the middle of the night; but they wouldn't do that unless that was important. And I think that's important when you're dealing with different cultures, because there's often a hesitancy when a fire starts someplace, if you will, for them to try to take care of it themselves or kind of cover it up. And that's a culture that you just can't have when you're operating all over the world, with very different situations, in different countries.
David Morris: And we've heard this repeatedly with other game-changing leaders. So number one, creating that information pipeline, so they were comfortable to come to you with information; clearly you providing air cover and support. What were some other things you did, in that you found that exceptional talent really needed in the culture, as you provided freedom within constraint? What were some other things?
Stephen Dover: Well, this is a little bit sideways answer to your question, but I have spent a great amount of my career managing people in a lot of different countries; and I think early on in my career, the mistake I made would be to go and interview someone and, in essence, pick the person who probably spoke English the best and probably was from some American graduate school. And what happened was those people were experts at managing up and managing to the corporate culture, but they often weren't very good at managing the local culture and the local people. And as I've said, we try to devolve decision-making and make it as local as possible. And so I learned from that - after having made some mistakes - to be less American, if you will, and try to think more locally and try to ask more people locally - especially people lower down in the organization - what they thought of the leadership, so that it didn't seem like it was just coming from the top down. And I think that made a huge difference; and it's one of the reasons we have been incredibly successful on the ground around the world. It's kind of how I see the difference between being a global organization and being an international organization. You want to be careful about just exporting your products, your thoughts, your culture everywhere around the world. To some degree, what we're trying to do is make the client and the employees in Korea feel like it's a Korean organization, as opposed to, certainly, an American organization, or even kind of a global organization. And that's a delicate balance. But if you can get that right, you can get some of the best talent around the world because there are lots of talented people who are really wanting that balance.
David Morris: And I'm thinking about how you measure this and the visibility in and even as you're reporting back to the board, etc. What were some of the API's, or items on the dashboard, that are maybe non traditional? What were some of the indicators you were observing so you did have some common ways to look at all these different endeavors going on - all these different teams - around the world? You know, other than traditional performance, what were other ways that you brought measurement to this?
Stephen Dover: That's a good question - and actually a bit of a difficult question - because within portfolio management, the measure of performance pretty much generally is just whether your portfolio performs or not. And because that is the way that most portfolio managers and analysts are measured - and they know that, and especially if they have good performance - it allows for other behaviors that are detrimental to the team or to the organization. So you have to include measures around teamwork, or you have to get teams to work together as well. And again, it's a balance because if you become too team-oriented, the ultimate being measuring on corporate results, everything's so diluted; and you're not empowering the individual. On the other hand, if you completely empower the individual, you get very self-centered behavior. And that's where we have to have the balance: measuring on teamwork. Right now - a bit of a discretion but I think your audience will find it interesting - is that there's such a movement towards ESG (environmental, social, and governance) investing, that that is an objective. Has the analyst or the portfolio manager moved towards those objectives? That's a brand new measure that we've put in. And then the other thing is, is having a top-down and bottom-up review, that isn't directly tied to compensation, but is influential. It's, in essence, asking the employees' peers and subordinates how they're working together. But it's the, you know, 360 degree kind of ongoing review, so they get a better sense of how they're performing.
David Morris: Coming back to compensation that you mentioned earlier, any innovative approaches to that, particularly, as you take teamwork and other dimensions, you know, in addition to just performance into account?
Stephen Dover: Well, I think that with compensation, you have to really play that balance between individual contribution, team contribution, and then sort of corporate contribution. So, remember, we have very autonomous teams operating in India, and the corporation's a long ways away from that. But on the other hand, ultimately, when they're making those decisions that you're not aware of, you want them to be making sure that they're doing it in the overall corporate client's best interest. So you have to have sort of all three layers within the compensation system balanced enough that the person is individually motivated and thinks she has autonomy in making decisions, but is making decisions along with the team and along with company. The other aspect of compensation has to be some sort of longer term wealth-building and retention device. And that's really important to have that go along as part of the compensation plan. And what we've done, I think, is a fairly good balance between, in essence, allowing the managers to manage that - part of that - themselves. It's not vested, but they manage it, and then part of that based on the stock price of the company. And I think that's been a kind of interesting and innovative ways to do things.
David Morris: Fascinating, indeed. You know, thinking a little bit about the authority level a leader like you needs to be able to go in and transform a division. And again, it's just exceptional, in terms of when you really look at these numbers, managing such unique talent, and at a scale of just so many billions of dollars, that you can do it with fewer people. If I'm hearing correctly - fewer people, higher output, great culture, sustainable - and you've now pass this along, right? You're no longer leading this group, and it's still performing great.
Stephen Dover: That's right. In terms of authority, and that comes back to the talent point, I never felt that, at least in the traditional sense, that the - underneath me I've had CIOs reporting to me, or very large portfolio managers - I never felt that kind of traditional "I'm your boss." Now, whoever's deciding your compensation is your boss; but remember if you have talent, to some degree, you're deciding your own compensation because it's kind of whatever the market will provide. I think it's important to have that very respectful relationship that is not based on authority, if you will, but really based on teamwork. I think - and I'm trying to say this somewhat humbly - but I think if you were to talk to the people that reported to me, they would find that my management style was as an enabler. I kind of facetiously joke sometimes that I worked for them in the sense that I am trying to make them do their job better, rather than direct them as what to do.
David Morris: Really applicable across industry. And then with authority with you, what did you need from above you to be able to go in and do something so transformative?
Stephen Dover: Well, I think this would be one of the reasons that I've stayed with this company going on 30 years. And that is, I honestly don't feel like I work for a big organization. I've been given an incredible amount of autonomy during my career. I've been given direction, and then told to figure out how to do that; including in my current and fairly recent position, where we've had a very large merger of two relatively equal-sized asset management companies - largest merger in asset management history, I understand. How do you bring those together? And then my role, because these are very autonomous investment groups, is how then do you speak for, or keep these groups independent, that have somebody who can speak for all the different groups? I feel like I've been given the mission, and then need to figure out how to do that. And that's been the way that we've been managed, or I've been managed, throughout my career. And I felt just really fortunate with that. If I'm honest, I've had a lot of different bosses over the last 30years; and there are a couple that didn't perform that way that were a little bit more directional. And I think that didn't work for me personally, and certainly doesn't work in that investment management area, where you really, as I said, are managing people that are pretty easy to walk across the street if they want to.
David Morris: The thing that just continues to echo in my mind from this discussion, Stephen, is talent and how you create environments for talent to reach their full potential at a global level. As we think a little bit about if you put yourself in the shoes of being the chair of a large public company, and you're looking to bring in a new CEO, you know; or if you're the president of the United States, and you're trying to bring in a new secretary to lead a big change at one of your departments; and you want somebody with your type of talent. What are some interview questions that you might use or approaches to be able to find somebody like you, who's going to do very well leading within an organization, however, really bringing out the most talent around the world?
Stephen Dover: So that's a good question, and I'm thinking as I'm answering it; but I think the first question would be, "What drives you? Why do you do what you do?" And I'm thinking of your previous question; why I've been given some autonomy to do things at my company is because my boss - who's the CEO, who's been my boss for a while - knows what drives me, knows why I wake up in the morning. And that gives her confidence that I'm going to do the right thing. You want to hire somebody who isn't just trying to get a different job or is this sort of "driven to make a change." You want someone who's really driven to get what ultimately needs to be done. Obviously, they're going to take the job, you got to pay them, and all that sort of thing. You know, the dirty secret is you want somebody who's taking the job because that's really what they want to do, not because it's the better job for them. So I guess what I'm saying there is you got to know the person, and you've got to have an authentic relationship with the person. And then, secondly, you want to be really clear on what needs to be done, but not very clear on how it needs to be done. And give some time and autonomy to make those types of decisions. The third thing is you've got to balance between having kind of the knowledge of the industry, or knowledge of kind of technical knowledge, with just the soft skills of how you deal with people and whether a person is kind of more relationship-oriented, which I would call myself, or more kind of past-oriented and organizational-oriented, which is probably what's needed for most companies. So you know, it kind of depends what kind of person you want. But those would be kind of the first things that I would try to know if I were the president or the CEO trying to pick someone.
David Morris: Really fascinating. Before we leave, given your years of market expertise in your role in the industry, you want to leave the audience with just a couple minutes about current markets? Here's, as a fellow Wharton grad, I think the part that just I'm most curious about at the moment is I understand is a lot of government stimulus money, etc. But how does the stock market just keep going up and up and up? You know, and I know you've been an optimist, but as you look sort of a year out and everything, I'm just curious what goes on in your mind, just, you know, most simply put of what explains all of this?
Stephen Dover: Well, I think that this could be a long conversation, but the short conversation is that we're, at least since 2008, we're really living in a very different ecosystem for markets than we were before, where the central bank, to some extent, is the government of playing very different roles. And we're also living in an environment with very, very low interest rates. It just doesn't make as much sense to invest in fixed income as it has, in the past. Fixed incomes rates peaked in late 1982, and so anybody riding that wave all this way down has done very well; but that's not going to happen in the future. To some degree, the equity markets are performing because there hasn't really been another alternative. Speaking of alternative investments - many of which are great - but there's so much money going into them, their efficiency has been reduced. So when you look at the equity market, and you look at corporate earnings, they've benefited from a large confluence of things, whether it be lower interest rates, kind of our huge fiscal stimulus. We didn't have a recession for a host of reasons; but one is because what normally happens is companies go bankrupt and the Federal Reserve came in and said, "We'll buy your debt, and we're going to keep you going." The bottom risk factor was taken out of the market. So what happens going forward is your real question; and that's where we have high P/E ratios. And so if the market wants to go up further, I think those ratios are probably going to go down. For the market to go up further, we have to have continued earnings; and we have to have continued innovation because the market has been driven mostly by a few companies that have been very innovative and can continue to be. But when we look off two or three years, and we look at potentially fiscal stimulus not being there, and we look at monetary stimulus not being there - and remember, stimulus is a marginal word, not an average word, so it has to either keep increasing or it's no longer stimulated - all that said, given all the alternatives out there, we're still positive on the equity markets with some caution about where those opportunities lie.
David Morris: And I hear you on innovation and how key that is. Finally, what would prevent significant inflation? What would have to happen over the next few years that all of this actually really is sustainable, and you don't have a bunch of inflation beyond innovation?
Stephen Dover: Well, I think that there are still a lot of underlying factors. I'm in the camp that it's unlikely we're going to have high inflation going forward because we have demographics - an aging population globally - that is deflationary. As you mentioned, innovation, the innovation we're having, tends to be deflationary. And the Reserve Banks have a lot - if inflation got out of hand, you know, with interest rates being so low - they have a lot of tools to reduce inflation, as well. That said, we're in a grand experiment. I mean, we literally have the Reserve Banks trying to have inflation, unsuccessfully, in the last many years - over 10 years. But be careful what you wish for, it can get out of hand, and that's the risk. But we haven't seen that so far. In fact, if you were looking at all the experts just a few months ago, they thought inflation would be higher this year; and they thought certainly the interest rates, as measured by the 10 year Treasury, would be higher. The consensus was 2%, and now we're looking at around 1.2% going the other way.
David Morris: Thank you, Steven.
Stephen Dover: Thank you so much for having me. I hope this was interesting to the audience.
David Morris: To our listeners, thank you for your continued support and feedback. Stay tuned for more exciting guests that we have in store for you. And be sure to subscribe to the HiPERleadership Podcast on your favorite platform, so you're the first to know when new episodes are released. And finally, if you have a big-change effort, a digital transformation, [or] modernization effort, visit our website to learn more about how we help align executive teams and stakeholders for excellence at www.hipersolutions.com.