I did my homework before interviewing Bill Brown, a Duke Law alum, and I was dizzied by his resume. He is ambitious and clearly an overachiever. After education in MIT and Duke, he practiced law for 10 years in the Big Apple, and then had a stellar career on Wall Street. Brown has held leadership positions at two most prestigious financial powerhouses: Goldman Sachs and Morgan Stanley. Last year, he became his own boss—started his venture capital fund and meanwhile taught at Duke Law, where his teaching focuses on business law, business planning, capital markets and corporate finance.
Zong: Bill, thanks for taking my interview. I have two words to comment on your experience. The first one is "versatile" and the second "restless". Seems to me you always like to find something new and challenging.
Brown: "Curiosity" is a more accurate word to use. (A hearty laugh)
Zong: You studied biology and political science at MIT before attending Duke Law School. Just curious what did you want to do at that time?
Brown: I grew up in the mountainous region of western North Carolina. When I was 12, I saw a program on TV that sparked my curiosity in growing up to become a nuclear scientist. I asked my father, "How can I do that?" My father said, "you must go to a very good school." "Like where?" I asked "MIT, but that's very difficult to get into." From that moment in my life, I decided that I was going to MIT.
So I went to MIT. I was very focused on math and science, and I had not planned to do much writing or literature. I was majoring in biology, but as I started to take more courses, I realized there was more in the world than math and science. It was a political science course that opened my eyes. As we got deep into the political theory, we were no longer in worlds of black and white, but in complicated worlds where there no certain answers. That was very stimulating.
I also developed an interest in writing software. I enjoyed the elegance and the challenges. But software design was not viewed as real engineering when I was in school. Hardware was the big focus. Looking back, the mid 70s was the time that the software boom started.
Zong: Bill Gates founded Microsoft in the middle of 1970s and now he is Harvard's most successful dropout. Is this your regret in retrospect?
Brown: Perhaps. Maybe I missed a career in software, but MIT was a great place to learn so many other things. I took courses in art, in music, in urban planning and in creative writing. I would take course overloads, and I enjoyed learning.
Of all my pursuits at MIT, writing came as the hardest. In part, my decision to go to law school was because I wanted to improve my writing. The other draw was the nature of law itself. It can be both abstract and applied, it is key to building societies and it lies at the cross-roads of business, government and private lives. Fascinating!
Zong: I can certainly see that you are a very competitive person and you want to prove to people you are capable.
Brown: I have never accepted that I am not capable of doing something. Too often "aptitude problems" are merely "attitude problems." If I feel that I am weak in something, I consider it as a call. I am my own biggest challenger.
Zong: That's a great attitude. Edison has a famous expression "Genius is one percent inspiration and 99 percent perspiration."
Brown: I could not agree more. Motivation and drive are so important!
Zong: You practiced law for 9 years and became a partner of Sidley Austin, which becomes famous for the place where Obamas worked and met. Which area did you practice and what did you learn from that experience?
Brown: When I first started out, I was very fortunate to work for two fantastic but very different lawyers. My first mentor was Roger Kapp. He was a senior partner who always had a first year associate to do heavy research. I worked day and night researching all sorts of topics for Roger. The other partner was Truman Bidwell, who is a lawyer who negotiated large deals. He wanted to get me out of the library into transactional work. I was very fortunate to have his confidence at an early age. The first year out of law school, I was in London on my own, negotiating a three-country aircraft finance deal. That was a lot of responsibility to have at such an early age. I was really lucky.
What did I learn? From Roger, I learned that there is an academic side of the law that demands precision. Then Truman taught me how to execute. When I moved to Sidley, I worked for Drew Quale, who taught me about negotiating country debt and for Jim Johnson who taught me about complex transactions ranging from mergers and acquisitions to project financings. Through it all, I learned everything about putting together massive deals—structuring, negotiating, drafting and closing. The logistics of it all can be overwhelming. Later on in my career, people commented that I could pull things off that no one else could. I clearly learned that from practicing law.
Zong: You left the law firm and went to Wall Street in the early 90s. Were you determined to leave your comfort zone? Or were you inspired by Bob Rubin who is also a lawyer-turned-trader?
Brown: It all started with a tax associate on several of my deals. His name was Lloyd Blankfein. This is the same Lloyd Blankein that is now running Goldman Sachs. He was one of the smartest guys I ever knew. Harvard undergraduate, Harvard Law. Lloyd left my law firm around 1981 and joined the J. Aron commodity trading firm that was acquired by Goldman. Lloyd would call me every two years and asked me to work for him. Then, at the end of 1989, he called me and said "Bill, I want you to come work for me. This is like Brigadoon, and the door is ready to close. This is the last time that I am going to call. You are a partner at a large law firm and have a very successful career ahead of you. But I need someone with your skills."
At the time of the call, I had been a partner at Sidley for 2 years. I constantly juggled a number of large transactions at any time. I was working long hours. At that point, I had proved to people that I could be a partner at a major law firm. Lloyd talked to me about a job that was new—a job where my learning curve would be steep. Working on a trading floor is fast-paced and places demands on analyzing information quickly. I knew it I was ready to take on this challenge.
I moved to Goldman's currency and commodities division. Initially I worked on structured product and with corporations in managing their currency exposure. Then they asked me to cover a major financial institution for their foreign exchange needs. It had not been a big account before, but it grew to the point where it became a very important account. At that point, they asked me and someone else to spearhead coverage of asset managers. I said to my partner, "How about I take Boston, and you take the rest of the world." Boston was attractive partly because it was a money management center and partly of my MIT roots there. It turned out to be a massive opportunity for me.
After a year and a half, Lloyd called me into his office, and said, "Give away all your accounts and build up the business again." Lloyd assured me that I had proved that I would be able to build a business from scratch again. Then, in 1994 he asked me to move to London and do it again. Lloyd's decision to push me out of my comfort zone was the best thing that ever happened to me. It taught me that I have the ability to build something from nothing, over and over again. I think a lot of people have this ability, but they do not realize it. That's the greatest lesson that I was ever taught, and Lloyd taught it to me.
Zong: Very inspiring! Talking about the trading floor, many people would picture the scene of flashing computer screen, shouting, sweating. Did you experience any culture shock from the transition of working inside a big private office to the fast paced trading floor where you sit elbow-to-elbow with traders?
Brown: A few differences. First, there are the hours. A few weeks into my new job, I was sitting on the trading floor, 6:30 pm one night. Lloyd came and asked me, "Bill, what are you doing here? The day is over, go home!" As a lawyer, I was accustomed to working every night until well after midnight, seven days a week. He continued, "If you have a client meeting, that's fine. Otherwise go home, and enjoy your family!"
The second difference is the lack of privacy. I had been accustomed to working in my own office, and on the trading floor I became very conscious of the people who sat next to me, only 2 feet away. At first I was worried that they would listen to my every word. Over time, I realized that they didn't care what I was saying. They were focused on their own little world. When I really needed privacy, I would simply put my head under the desk and talk on the phone.
Zong: I could imagine the distraction on the trading floor, also the pressure must be very high.
Brown: That's right, you have to ignore the things that don't matter and focus on the things that do. After a while, I learned to tune out and tune in. We call it "peripheral hearing". Sort of like "peripheral vision", except for your ears. Then, in the midst of all this tuning in and tuning out, you are multitasking with the computers, with the phones, with your thinking and with your talking. And then, there is the stress. Sometimes it builds up to the point where you have to take time out for yourself. The interesting thing is if you only get away for a week, you come back so charged and ready to do it again.
Zong: The other characteristic of the trading floor is that it reflects a very flat organization. And managers will sit next to their troops.
Brown: It's funny that you mentioned Bob Rubin earlier. I want to tell you a story about him. One day, I was watching my screens as a particular news release started impacting the market, and a voice behind me asked what was going on. I started my answer and, mid-sentence, turned around to see that Bob Rubin was the person asking the question. We chatted for a couple of minutes, and he thanked me and went off to talk to someone else. The effect was magic. I and the people around me collectively went "wow!" and went about our jobs feeling even more energized.
Bob Rubin was the sort of manager who understood the impact he could have on morale by talking to "the troops". Lloyd did the same thing. Both of these guys were immensely interested in the front-lines of the business and routinely found opportunities to keep the hierarchy to a minimum. When managers reach out, you get to know it is a flat organization. That environment doesn't need much managing because the people on the top care about your job.
Zong: What a story! This is indeed the art of leadership. There are many products on the trading floor, equity, bond, etc. Why are you particularly interested in FX?
Brown: FX is a part of every major asset. The wonderful thing about FX is that you are not inventory constrained. The FX market is so liquid. It is not like the bond trader who is constantly working with the salespeople to acquire or dispose of bond positions. When you are in FX, you don't start the day thinking of inventory; you start the day by thinking of ideas. How is the world working together? What is the macroeconomic situation of U.K., Germany, Japan? There has to be a geopolitical and economic model working in your head.
You also have to understand the individual product markets. Because currencies can be driven by the flows in and out of assets, you have to understand whatever is moving on any particular day—CDOs, credit default swaps, RMBSs, CMBSs, equities, sovereign debt. Then you have to think through the correlations across assets and asset classes. Ultimately, this helps differentiate you because you find ways of helping managers of those assets understand the interrelationship of their markets with currencies and other assets.
Another reason currencies are very interesting is that, because they are so liquid, you are able to put together more complex, and useful, derivatives. You just cannot do this with other asset classes.
Zong: You were head of sales for FX products. In your opinion, what is the secret of success in sales?
Brown: My overall approach to deal with customers is that I want to provide the best possible service. That kind of approach really resonated well with the clients. I wanted them to say "Bill is an extension of my team!" In addition, it is important to be patient and supportive—especially in Europe and Asia where there is a greater emphasis on long-standing relationships. In some respects this is similar to the area of the South were I was raised. That helped teach me patience in building relationships. Finally, it is important to be interested in the business of the clients. Take the situation where a client hears that "Bill Brown is on line 1 and wants to talk to you about the Yen" and someone else is "on line 2 to talk about the possibility of managing additional assets." Almost every time that client will pick up line 2, because that is how the client ultimately makes money. You have to understand what interests the client the most. Sure, I will talk to the clients about their portfolio strategy, but I am curious about their business model, the way they run their business, and how I can help them—how I can help them get more business, and how I can help them expand their business.
Zong: You mentioned uncertainty. Bob Rubin's biography also emphasized uncertainty. How do you exactly view uncertainty?
Brown: There is always uncertainty and complexity. Columbus had a horizon over which there was uncertainty, and today our equivalent horizons of uncertainty are farther out in space and deeper into the cell. We have uncertainty and complexity everywhere from diagnosing diseases to managing money. What hurts us, though, is lazy thinking. Look at LTCM. Those were some of the smartest people around, yet they lost their money. They lost it because they thought they understood price movements, but they did not understand the impact of liquidity on those prices. Same thing today. In each case, the market is like a crowded room. People milling about in different directions, some pairing up to interact, some walking from one part of the room to another, but when someone yells "fire", everyone runs for the same door. Those people didn't care about the way they were interacting before, they all simply wanted out. That happened in the stock market in 1987; that happened in 1998 with the Asian and Russian debt crises, that happened in 2001 with the dot-com bust and that happened today with the credit crisis. Each time, more and more people crowded into the room before the alarm was sounded, and each time the crisis got worse.
The problem is that people put on trades assuming that certain patterns will hold. To continue with the "fire" example, they assume that people will move around the room in predictable patterns. They take on more and more risk in assuming those patterns will hold. Yet, they only built their risk models to examine those patterns. In the early 90s, Goldman was bringing liquidity assessments into their risk management models. They looked at portfolios over the 10 best days and the 10 worst days in history. That approach was the beginning of capturing liquidity impact, which Goldman's competitors were slower to appreciate.
The real problem here lay with many of the managers. They were too eager to use quantitative people without understanding that they needed to guide the quantitative people. This would be like letting a patient read their own X-rays. The managers did not think that they needed to be better trained to understand what their risk managers could and could not do for them. And, they ignored the most basic risk model around: if something is too good to be true, it probably is not true. Why would someone think that AAA subprime debt should be just as safe as government debt, which paid less in yield?
If people tell you that there is a strategy that pays excellent returns, you have to ask "What am I missing?" There is no "free lunch." Without added risk, you won't have the added return. Yet senior managers ignored that most basic of risk models. You can never let your profit motive blind you.
Zong: Sales and trading must require different skill sets. What do you think of the difference?
Brown: The big difference between a sales person and a trader should be zero, because if you are good, you can do either of these jobs. If you think like a trader, your clients will find you more valuable. You know what information is important, you know where the risks lie. And, if you think like a salesperson, you understand how to solve a wider variety of problems.
Each morning, I would identify an important theme that was otherwise being ignored. I would call my first client to start the ball rolling. They would reflect on it, discuss it, and I would call the next client. After a while, the theme takes on a life of its own. It's like putting a stone in a lapidary: at the beginning it is rough and ill-formed, but after a while it becomes polished. In this case, the good salesperson has taken a trading idea, spoken with clients (who are themselves traders) and at the end understands what part of that idea is valued by the market and what part of that idea does not make sense. Again, the difference between a good salesperson and a trader should be zero.
This is especially important today. It used to be that a salesperson was more about entertaining than thinking. Those days are long gone. Customers these days are really discriminating. They are bombarded with so much information, they have so much liquidity. If a client goes to dinner, the dinner is usually secondary and the focus is usually on the markets or the business of the clients. Let's face it, these days clients would rather have dinner with their family unless you really have something important to offer.
We always look for ways to enrich the thinking of our clients.
Zong: You once said: a good lawyer needs to understand business; a good business man needs to know law. Could you please elaborate?
Brown: When I was a lawyer, I didn't fully appreciate some of the business aspects of the deals. I now realize that clients have view their lawyers as a source of both legal and business advice. Otherwise, the client fails to involve the lawyer early enough in the transaction. This is because they are not viewed as a source of important business advice. But, for the lawyer who is respected for their business acumen, they will be brought in earlier and help avoid a number of issues that might otherwise be baked into the deal. I didn't full appreciate that dynamic until later on.
In the course of my career, I have had some good lawyers, but many lawyers don't understand business. When Dean Levi asked me to come to Duke, he asked me to teach what I wanted to teach. So, I taught all the courses I wish I had learned when I was in law school. So, I have taught two highly quantitative classes: Fixed Income Markets and Quantitative Methods, and Equity Valuation and Advanced Financial Statement Analysis. These classes are for advanced finance students. Then I taught a class entitled Essential Analytical Techniques for Lawyers. This is a class to help all law students become more comfortable with numbers. And, in additional to a year-long class on the credit crisis, I taught a class on Mergers & Acquisitions: Structuring Venture Capital, Private Equity and Entrepreneurial Transactions.
My goal is that my students will be better prepared for the legal and business world than students from any other law schools.
Zong: Great! So your journey went a full circle and came back to North Carolina. Students are fortunate to take advantage of your expertise.
Brown: I often look at it the other way, I am fortunate to take advantage of the students' experience and knowledge. I believe experience is not a prerequisite to have deep and important thoughts. So I am very receptive to and respect my students. A number of people underestimate the power of students. Students know that my door is always open, and when they walked out the door, I often feel that I might have gotten the better end of the bargain in the conversation I just had. I feel really fortunate.
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