Tony James: From Signal to Scale - The Foresight that Shaped Modern Finance | Grey Matter with Declan Kelly

Tony James has spent over four decades seeing what was coming next and acting on it long before anyone else.

He built DLJ from a mid-sized brokerage into one of the most influential platforms on Wall Street by creating the leveraged buyout and private capital businesses that became the model the rest of the industry eventually adopted. He joined Blackstone as COO and constructed an entirely new set of investment businesses, helping transform the private equity firm into the world’s largest alternative asset manager. At Costco, he has spent four decades helping build and safeguard a company around a single principle — always do what is right for members, and the shareholders will take care of themselves.

Every one of those calls looked unconventional at the time. None of them do now.

In this episode of Grey Matter, Tony James sits down with Consello Founder, Chairman and CEO Declan Kelly to discuss the instincts behind those moments, the decisions that defined it, and what a career built at that scale ultimately teaches about judgment, patience, and knowing what to do next.

In this conversation, Tony discusses:

·  Why he turned down Goldman Sachs and Morgan Stanley out of school and how he built DLJ's leveraged buyout business

·  The culture he built at DLJ and later rehabilitated at Blackstone, and why teams that root for each other without incentives beat individual talent every time

·  Spending a billion dollars on a distressed credit team in the middle of a market collapse, and why it was one of the hardest and most consequential bets he made at Blackstone

·  Why he turned down a senior role in government after an honest assessment of where he could be most effective

·  What four decades at Costco taught him about the power of doing one thing extraordinarily well and refusing to get distracted by anything else

About Consello

Consello is an Advisory and Investing Platform with offices in New York, Miami, Atlanta, Dublin, Belfast, London, Barcelona, Abu Dhabi and Riyadh.

Consello’s distinct advisory practices provide the complete strategic counsel today’s leaders need to grow and transform their organizations. Consello’s advisory expertise spans Corporate Advisory; M&A; Management Consulting; Talent; and Sports and Entertainment. Dedicated teams operate in each practice, led by a leadership group with deep operational experience across industries, business growth stages and market cycles and with an expansive set of global corporate relationships.

Consello’s investment business, Consello Capital, identifies high-potential mid-market companies and invests capital and expertise to transform their growth.

About Grey Matter Host Declan Kelly

Declan Kelly is the Founder, Chairman and CEO of Consello, one of the world's most influential boutique advisory firms. A trusted advisor to dozens of CEOs leading the world's top companies, Mr. Kelly has built or run four global consulting companies over the last three decades prior to founding Consello. Mr. Kelly also served in government as US Economic Envoy to Northern Ireland during the Obama administration.

Transcript

SPEAKER_00 0:00

The biggest decisions are hard to analyze. You can make a lot of pros and a lot of cons, and you look at it. It doesn't always lead to a clear answer. A lot of times I find when I face big decisions, it's not a question of sitting down and deciding. By the time that decision is in front of me, I already know what I think the answer is.

SPEAKER_01 0:20

Welcome to Gray Matter. I'm Declan Kelly, founder, chairman, and CEO of Cancelo. I've spent the last 30 plus years advising the CEOs who are leading the world's top companies. If there's one thing I've learned in that time, the best leaders think differently. That wiring, that gray matter, separates the truly exceptional leaders from everyone else. Understanding it is what allows us at Cancelo to help the best in the world be even better. This podcast exists because the most accomplished leaders agreed to sit down and talk about something they rarely discuss publicly, how their minds actually work. Over four decades at the highest levels of finance, Tony James has made a career of spotting high growth opportunities before anybody else. At DLJ, he created a leverage buyout and private capital businesses that became the model for the rest of the entire industry. While leading Blackstone, he built entirely new investment businesses and he transformed that firm into the world's largest alternative asset manager. As chairman of Costco, he has safeguarded the membership model that made it one of the most distinct and successful retailers in the entire world. Each time, his instincts have led to significant growth and reshaped how entire industries operate. His mark on the business world has been profound and also long-lasting. This is Tony's story. This is Gray Matter. Tony James, good morning and welcome to Gray Matter.

SPEAKER_00 1:47

Thank you, Declan.

SPEAKER_01 1:48

Nice to see you. Thank you for inviting us into your wonderful home. We look out on Central Park here. Even though you were born in Michigan and grew up in Boston and went to school in Harvard, New York has always been central to your story. And I guess this sort of resonates with you when you look out that window very much.

SPEAKER_00 2:06

I know. You can't help but feel really lucky to look at that every day. And there's the city right at your feet, the biggest city in America. I would argue one of the most vibrant in the world. I just love it.

SPEAKER_01 2:19

The thing I didn't realize about you when I was looking into your history, even though we know each other so well, I didn't realize you were a soccer player. When you went to college, you were a walk-on on a soccer team and won and got to the NCAA Final Four three times. Nobody knows that about you. So how did that all come about?

SPEAKER_00 2:40

Well, I I grew up in a small town and we had one sport and it was soccer, and I loved it. And um I went to Chote, hoped to play, but got very sick my first year and never got on that track, and then decided maybe the better route to college was tutoring um handicapped kids. Um when I got to college, I think we all in college struggle in our first few years, finding our way, who am I, am I gonna make it, things like that. And soccer was an antidote to that. I could go out there on that field, I could play my heart out with those guys. It was simple, it was one-dimensional. I never thought about, you know, am I gonna fail out of Harvard or anything like that? I never thought about what kind of person am I gonna be. That really helped, and it gave me a whole new set of friends. It served a lot of purposes other than just playing soccer. But actually, when I cut through it, it was just fun.

SPEAKER_01 3:28

You don't like to talk about yourself. In fact, you know, I know you don't do interviews like this, which I really appreciate. But you grew up in a very interesting household where your dad was the president of Arthur D. Little, and so you had a front seat uh looking straight into the world of uh corporate America from a young age. That must have been extremely formative in terms of how you thought of the world.

SPEAKER_00 3:52

It was. I mean, it certainly oriented me towards business right from the start because he he was a management consultant and he traveled all over the world, and we talked a lot about business problems. And I like that. I found that interesting. I would say my dad was a tough guy. He was known in Arthur as the Prussian Army General, and I think part of that was his nature, and some of that I have and sometimes need to be mindful of. Um, but some of it also came from World War II. He went into World War II in 19 and was a forward observer for Patton, so it was in always behind enemy lines, directing the the troops and the artillery three times when he was in a Jeep when the driver next to him was killed. Three times. Wow. Uh once he got into Germany, he uh uh liberated concentration camps and just saw was in the Battle of the Bulge, saw the worst of the worst of the worst, and he came out of there well with with what I think today we would call PTSD, which made him kind of aggressive and angry and difficult man. There's no two ways about it. I loved him, I respected him, but boy did we butt heads.

SPEAKER_01 5:01

I guess you learned yourself by watching that how not to be that, because you are known for being tough in business but also being uh empathetic.

SPEAKER_00 5:12

I did try to very much learn from that, and I think his kind of over toughness capped his career at the end of the day. Um I I think he got right up below the CEO but didn't make the CEO, and and uh that was a great disappointment to him. But more than that, I dealt with the consequences of it, and I didn't want to be exactly that person. There was a lot to admire about him. But um I I keep trying to mitigate my own personality to make sure I don't fall into some of the same traps.

SPEAKER_01 5:43

When you look at your academic record and your history, which again not many people may be aware of, but it is it's astounding. You know, you were a Baker scholar at HBS, you were a John Harvard scholar, you were first in your class, you were a walk-on to the football team, and all the things you've done in your career. This academic aspect of you and the ability to sort of parse through things that really matter and get to the point has really been there since you were quite young.

SPEAKER_00 6:08

That was never my self-image, uh, actually. Um up until high school, I guess, I thought I was um okay. There were smarter kids. All the girls seemed smarter than all the guys. Um probably were. Um, and I was content to kind of do my thing. I always felt like um my s secret power, I guess, was just grit and willing to put up with more pain than just about anyone else. When I played football, you know, it was it was tackle football, but it was pick up, no pads. I would hit as hard as I possibly could. I would barely be able to get up. But the big guy I hit, he didn't want to get hit again. Didn't hurt him as much as it hurt me. But I I always felt like I had the ability just to really just grind it out. And that that was a that and I f whenever I got really threatened or had real problems, I fell back on that. Um my, you know, I try not to get overwhelmed. Uh uh my successor at Blackstone, John Gray, um, says says it really well. He says, stay calm, stay positive, never give up. It's kind of a mantra. And and I didn't articulate it that well, but I lived that. Um and it always served me well. I never uh and I'm competitive, let's face it.

SPEAKER_01 7:33

But you also, as we'll talk about in a minute, are very patient, even though you don't think of yourself as patient. If you look at all the various things that you've done over an extended period of time, if you knew it took a while to get there, you showed great patience, which I think is the other side of leadership. And you know, when you left college, you could have gone anywhere. You were offered jobs by everybody, and you chose DLJ, which was an unusual choice. Why did you choose DLJ?

SPEAKER_00 8:02

That's a good question. I think part of it was ignorance, candidly. But but what I liked about DLJ, let's focus on that, was it was young, it was growing, the people were down to earth. The the big banks, the Morgan Stanley's, the Goldman Sachs, felt so stiff and so regimented. I would say when I got out of school, my biggest fear was not being able to fully utilize my brain and my creativity. And I didn't see how slotting into one of those big regimented organizations would be very conducive for that. I also was never someone that had a great respect for authority, or I kind of like doing my own thing or being my own boss, I guess. And again, those regimented organizations with layers and layers and layers of authority and central control just didn't feel like as good a fit with a where you had a young, growing, fluid kind of company where I could have immediate impact beyond what I deserve and get opportunities driven by the growth of the firm, not just my own personal growth. So I, you know, I I made an instant choice, as I do in life. I make pretty much instant gut choices.

SPEAKER_01 9:10

Do you do that a lot? I do. Really? Not the analytical element? Is there an emotional aspect to how you think about these things at all?

SPEAKER_00 9:18

The biggest decisions are hard to analyze. You can make a lot of pros and a lot of cons, and you look at it, and and um it doesn't always lead to a clear answer. Investment decisions, things like that, I'm very analytical. But life decisions, should I get married or not, should I go take that job or this job? Um, should we get into a new business or not? A lot of times I find when I face big decisions, it's not a question of sitting down and deciding. By the time that decision is um in front of me, I I already know what I think the answer is.

SPEAKER_01 9:51

I came across an article from 1986 that described you at the time, it was the Wall Street Journal, as an up-and-coming MA whiz kid. Not that long afterwards, you were running the entire M ⁇ A group. And there was something about the culture. You know, when I came to New York first uh in 2000, 25 years ago, people talked about DLJ as that was the model, that was the business, that was the one that really differentiated itself, and it became the standard bearer for so many different cultural aspects of how you run these businesses. You were right there in the middle of that.

SPEAKER_00 10:23

What was it like? That's a very insightful comment. And just to reinforce that before I actually answer the question, even now, DLJ get people get together at least a couple times a year in big groups and just celebrate the old feeling, the old firm. I I've never seen anything quite like it. There's still just a love of that firm. I think it I think it partly stemmed from Dick Janrett, who was a wonderful gentleman and cared about his people, I mean, deeply and authentically, but partly it was just the the way that culture developed and was built. Um I'm not sure anyone necessarily mapped it out, but it happened and it worked and we kept reinforcing it. It was all about team, it was all about empowering your people, pushing down authority. Uh 100% of our people's time was out there, tried to beat the competition and serve the client, never internal politics, it was no politics. We had a reputation for being well paid, but actually, in point of fact, we were like seven out of eight. And people wanted to believe they were well paid because they loved the firm and they wanted an excuse to say. They convinced themselves of that. We had very low turnover, and our people just felt really good about their lives. And it's amazing what you can do if you have a group of people that play like a team, believe in themselves, and always want to do the right thing.

SPEAKER_01 11:49

So, what I find really interesting in this whole era of your life, because I believe that you, in many ways, are the father of an entire industry, the way you approached what you did in DLJ, and then subsequently in Blackstone, everybody else has copied the model that you personally created. Inside of DLJ, you know, CEO and all the leaders like you used to go to the canteen and eat their sandwiches with the people. And I remember when you sold uh to Credit Suisse Force Boston, two years later you left. But I think one of the reasons people think you left is that entire specialness went away because you replaced it with a very, very big company. Is that fair?

SPEAKER_00 12:28

Yeah, that that is fair. Um when we sold DLJ, I was the one employee where the, as part of the merger agreement, had to agree to stay for two years. And I don't mean to say that I was forced into that, because I would have done that anyway for my people at 100%. By then I had gotten to be the number two person at DLJ. And and I lived for my team and my teams, actually. And I felt such a burden to take care of them. This merger was, I mean, in some ways it was brilliant, i.e., we picked the all-time peak at the time of the market. We sold DLJ for $12 billion. Morgan Stalin sold to a much bigger firm a few years later for eight. We got all cash. Um, and DLJ did not have the capabilities to survive and succeed as an independent company. Um I saw that, um, but a lot of the people didn't, so they kind of blamed me for selling them down the river to into a merger. I mean, we had to take that price. It was by far the best price for our shareholders. Above all else, we owed our shareholders the best price. But it was the culture, the culture differences were so different. Instead of empowerment and believing in your people and playing like a team, it was central control. Don't trust your people to do anything, don't even trust the people that watch them. They need watchers to watch the watchers. And politics reigns. And it was just so different. Even though on paper, the uh Karat Suisse, the fourth largest securities firm DLJ was the fifth, it was very, and together they were number one. But this was one plus one equals one at the end of the day. When I started right after the merger, I had 4,200 people in investment banking. I had responsibility for investment banking and derivatives and international and merchant banking, all the alternatives businesses. We had 4,200 people and we started 2,200 two years later. That was a lot of bloodletting. And while that happened, though, we the the good thing about selling at the peak was we got a great price. The bad thing was we then had a downturn that was very severe going into the 2000 and bloodletting everywhere. And we weren't prepared for that. We were still trying to figure out the merger, much less preparing for a very severe downturn. And it was brutal.

SPEAKER_01 14:51

Before all that happened, when you built DLJ and did what you did with the team, you know, you took what was a traditional banking business and you turned it into a merchant bank. You started doing things nobody ever expected you to do, investing your own capital, proprietary deals, you know, and then you started expanding beyond that into all the other things that now become the normal model that we have today. When you were doing that at the time, were you conscious of the fact that you were building something that didn't exist on Wall Street? Of course, you couldn't predict that the entire world would copy it for decades later, but at that moment, were you sitting there? Because I think everybody watching this will really want to know what you were thinking at the time, because it was incredibly prescient.

SPEAKER_00 15:31

Well, first of all, 100% conscious, but I w I wouldn't give myself credit for being prescient so much as necessity. So I was at DLJ. It was a nothing of a firm. There were hundreds of bigger brokerage firms, many of them are out of business today. But think about Lehman Brothers and Lowe Rhodes and E. F. Hutton and Payne Weber and on and on and on and on and on. Not to mention Morgan Stanley and Goldman Sachs and Merrill Lynch and all the big guys, really big guys. We were trying to compete against giants. Our firm was founded in the 60s, giants that have been in business since the 30s, and the embedded relationships. The challenge was how do we find a way to win? We're not going to find a way to beat Goldman Sachs by being more, or Morgan Stanley by being more corporate or more traditional, or bigger, or beat Merrill Lynch with bigger balance sheets or more brokers or anything. We hadn't we had less of everything than everyone else. So to me, it was all about how do we win? And then this funny little business started up in about 1980. There were a couple of deals, leverage buyouts done. And I was I was running the MA group then, and and DLJ had a little venture capital business. So we we had we had seen the power of investing our own capital. So I put up my hand and I said to the then leader of the firm, I'd like to, I'd like to get us into this business. This is a uh this is an interesting thing for us that I'd much rather compete against. I mean, no one had heard of KKR then. They were there, or Forzman Little or Gibbons Green were the big three. Only one of them exists today. But you'd you'd much rather compete against KKR than Goldman Sachs. KKR had like five people. And the management predictably said, no. Um you're an MA guy. We're going to give this to the venture capital people because they're the principals. And I kept showing them deals, and they kept saying, no, no, no, that doesn't work. And then someone else would do, some other firm would do the deal. And finally the firm said, okay, you can have it. And so we we built on that right away. We couldn't necessarily win our clients in a head-dead competition. But if we owned them, guess who got the business? And then to facilitate the leverage bio business, we needed to build a high-yield business. And then and then when the downturn came, DLJ became a dominant high yield firm for a deck a dozen years, accounting for 40% of all the trading volume. So there's very few firms that are as dominant a niche as we were. And then there was another credit, 87, I think we had the SNL crisis. So then we then we created the restructuring business, restructuring advisory business that didn't really exist except for boutique firms. And one thing led to another, and we created all these businesses around the ecosystem. And then, of course, we created new private capital businesses, real estate and uh private credit and funds of funds and so on. And it was what we could do. And and it was our end run around the entrenched big guys that allowed us, uh allowed us to win.

SPEAKER_01 18:30

When you're walking around the upper east side or anywhere else, and you're sitting looking at all these storied firms that now basically took the entire playbook and said, okay, we're going to do it just like that. In your private moments, when you think about how it all came about, you created an architecture that the rest of Wall Street copied.

SPEAKER_00 18:49

That's almost more true of Blackstone than DLJ. Because at DLJ, other firms did try to have embedded inside their firms these principal businesses. But then in 2007, they all melted. So not many firms actually sustain that model anymore. They have pieces of it. They have the high yield, they have restructuring, and they have some pieces of the business. And this is one of the things that made the Credit Suisse deal not work so well is the bankers, when we merged, the traditional bankers with all these corporates hated the fact that DLJ, the DLJ side of it, brought ownership of companies because they didn't want Credit Suisse to own a piece of a company that competed with a client. I would say the weight of the employees was heavily Credit Suisse, maybe 80-20. Profits were about equal, but the employees were 80-20. And we couldn't win that weight of resistance against the principal business. And one after another, they just kind of got dismantled.

SPEAKER_01 19:50

So when you left and you went to Blackstone, again, an unusual choice. Could have gone to lots of places. And you've described your relationship with Steve Schwartzman as one in the gazillion where you basically, you know, were the yin and yang perfectly to each other. What was your reasoning for going there in the first place?

SPEAKER_00 20:11

First of all, Blackstone had had its struggles for a couple of years. Steve been trying to change it, and he wanted to make change. And so he reached out to me when I decided to leave. It was almost a perfect match. Blackstone's range of businesses. They had advisory businesses and they had principal businesses. I had run and built every single one of those businesses without exception. And there's no one else in the world that had done that. So I was, it was a unique fit. They had just the perfect portfolio of businesses, and I'm the only one was the only one out there that had really built all those businesses from MA, restructuring, uh, so on and so forth, all the different principal businesses, all of them. And so it that was a kind of a unicorn. And then Steve and I are very different in terms of personality types and how we arrive at uh decisions. But we were a great team. Um we almost always agreed, and we got along very well, and he was the best boss I've ever had, actually. The combination of empowerment, what which he did for me, and engagement, not not being divorced from the key business decisions, always there uh when we needed them, setting the ambition, setting the intensity, setting the tone of the firm. He was he was a great partner, great boss.

SPEAKER_01 21:28

And you ended up creating an entire pallet, schmorgers board of businesses that were the entire combination of all the things that you wanted to do. That was the first time, I think, in in financial services that the word trillium was ever used.

SPEAKER_00 21:42

When I went to Blackstone, it was more like going to a law firm, you know, a small partnership. Uh AIG had we had 20 billion of assets under management scattered around a few businesses, and some of which were shrinking and some of which were growing. And we had some advisory businesses that had fallen. 60%, 70% over the last five years. It was kind of a nice little boutique. It was different from some other firms, and it had a mix of businesses. And the firm had just taken $100 million from AIG that valued the firm at a billion dollars. When I left, it was a $150 billion business, and we'd gone from $20 million of AUM to a trillion. So it was a run that was wildly more than we expected. But the whole economy and markets chain wasn't just Blackstone succeeding alone. And we had our surfboard and we were top of the wave. And we wrote it.

SPEAKER_01 22:50

Speaking of top of the wave, you of course went public. The IPO was very successful. Interestingly, I read that Steve wasn't in the New York Stock Exchange that day. You were. He was in the office, and you guys were communicating. The financial crisis occurred, and you did something completely counterintuitive yet again when you did the GSO deal, which got you into credit, private credit, and so forth at a time when everybody else was losing their minds. And so stock went down 40%. Everybody thought, oh my God, oh my God. And all of a sudden, here you are buying up distressed assets all over the place. And that really was one of the making of the company. Again, intentional.

SPEAKER_00 23:23

Going public wasn't the end of the journey. It was the beginning of a whole new leg. If we hadn't gone public, we could do pretty well as a private company, but we wouldn't create a great financial institution, a global financial institution. It was one that we aspired to be more respected than Morgan Stanley and Goldman Sachs and to take our place with JP Morgan or so on. Going public was an enabler of that. One of the ways it enabled that was the ability to have currency to do acquisitions. That was the first big one. It was a billion dollars to buy a fairly small business and a talented team. But it was not the easiest decision in the world either. But what people don't really appreciate was Blackstone did maybe 15 acquisitions. It wasn't just one or two. And they all worked out in terms of economic return. They weren't all uh equally strategically impactful, but they we got a great return on all of them. And it that's unusual in our industry. The history of firms merging, there wasn't much to start with, or big firms buying boutique firms was was not good at all. So we had to be uh we were mindful of that.

SPEAKER_01 24:35

What was your operating style over all those years? Like, how do you think about how you ran the firm? Because everybody credits you with you know doing so many amazing things, and you've left a great legacy, and John is now doing an amazing job himself. And obviously Steve has been there for it all. But your operating style, people have told me, you know, you'll argue over a comma for an hour. I kind of Especially a decimal point. I'm not sure that's good. Over the years, you obviously changed a lot, but maybe you didn't change that much. What do you think?

SPEAKER_00 25:07

I think culture is really critical. That's the that's the key determination of whether a company succeeds or fails in the very long term. And it's about the only enduring competitive advantage you can get. DLJ had it, I saw the power of that. Costco has it, but I saw the power of that. I think Blackstone has it. I saw the power of that. But when I came to Blackstone, I felt like I needed to uh rehabilitate the culture. I've gone in the wrong direction. So I'm and number one, I'm a big believer in culture, and some of those tenets are teams beat individual talent every time. So, and true team, where you really root for each other, help each other without ask, help each other without incentives, true team mentality, share information, share relationships seamlessly. So teams beat individuals. I'm a huge believer in robust debate. So I we can argue and debate a point, but I'm not never attacking you. We're just trying to get to the right answer to truth together. That's a trick because so many people sometimes feel uh personally attacked, and then and then the whole process breaks down. So you have to establish that we're just trying to get to truth, and whatever we decide, we own it together. Um, you know, if it doesn't work, it's it's a joint decision. That's that's a that's a big one for me. I don't think there's any substitute for hard work. Um and I always led by example on that, and no corner cutting. So the comic point, yeah, I read all the memos every time, every exhibit, not to catch commas, but to make sure that the rigor and the quality of work was as high as it could possibly be. Because someone was looking. And and it's and you learn things on that. Um, but more importantly than what you learn is the message it sends to the teams that they have to be that good, because they never know when the boss is going to really dig into something that that they didn't think rigorously about. And that and that kind of gets to the maybe the last one of just in intellectual rigor and intellectual honesty of looking hard at facts, not opinions, not not people that have a think they'd have the answers in pontificate. What do the facts say? On investment, that's one thing, but when it's looking at your own business, you have to that makes you very self-critical sometimes. I mean, we're not as good as we think. No one ever is. Reinventing our business was always something that I wanted to push because it's very easy for the industry leader to get complacent. But man, in financial markets, they change fast. And and you've got to be reinventing all the time.

SPEAKER_01 27:48

I was looking at a lot of the different things that you you worked on in Blackstone, you know, when you were there, and I was fascinated about the day you walked into Steve's office and told him, you know, that you were going to retire. Nobody realizes that you did it 15 years ahead of time.

unknown 28:06

Right.

SPEAKER_01 28:08

So you told him you were going to retire at 70, but you were only 55.

SPEAKER_00 28:12

Well, I would say the 70 was somewhat arbitrary, obviously. It's a round number. But the point was, I'm not a short-termer, but I'm not a forever person either. And that had certain implications right away. Steve will be there forever. Essentially, Pete Peterson was there until very near the end. And I I didn't want that expectation in in Steve's mind, which meant I was never going to be Steve's successor because he's only four years older than I am, and he's going to be there forever. But more than that, I'd already done an, you know, I'd had DLJ, I'd had a great run. I felt I had the energy the energy intellectual and physical to do other things and make differences in other spheres. And I didn't want to not do that. After 20 years running a company, if you haven't put your strengths into that organization, you're probably not going to do it. And I'm kind of a believer that CEO should, maybe 20 years is too long. A lot of people would say it was, but every after 10 or 20 years, CEOs should change. It brings vibrancy and renewal to the organization. At Blackstone, uh, I was lucky because I had a great successor. And he's doing things differently than I did and doing them well. Everyone wins on that. But yeah, I I wanted to go on and do other things and conquer other worlds.

SPEAKER_01 29:26

Well, you conquered one in uh Costco because uh when you met the two founders and there was a really small little business in Seattle, I think the cultural phenomenon that you all have created in that business is it's it's extraordinary. And you've been associated with that business now for five decades and still are today as the chair of the business. What first attracted you to uh Costco?

SPEAKER_00 29:51

The two founders, and particularly Jim Senegal, was absolutely one of the best business people I've ever come in contact with, and I've come in contact with thousands and thousands and thousands. He's a remarkable uh combination of passion and leadership and execution and strategy and uh principles and maniacal attention to detail, relentless work ethic. I mean, he traveled 270 days a year or something. I mean, you know, he he he he's a he was an amazing man and he could do anything. There was another company called Price Club that had opened a couple of these units. So it's not like is this a new semiconductor technology? Will it or won't it work? It was shown that it could work. If it could work anywhere, Jim would make it better. Of course, he was number two at Price Club that didn't hurt. If anyone in the world could make it work, he would, and he would make it better and better and better. So so it to me it was um wow, this is great. And the concept was powerful. It was new, it was powerful, it was completely self-reinforcing. Yeah, there's a lot to like about it.

SPEAKER_01 30:53

And what about the decision to have a culture in the company that you protect management from having to worry about the share price? In other words, you do the right thing, share price will take care of itself. But actually, very few people do that. So to have a culture where from the top you say, do it this way, don't worry about that, it's going to be totally fine, is it's quite rare in actuality.

SPEAKER_00 31:13

Well, we tried to have that at Blackstone too, I would say. Um, and if you look at the cover Our Prospectus of Blackstone, it says, you shouldn't, it says to shareholders, it's only the second time you've ever had one of these notices on the cover of the prospectus. Warren Buffett put one on Berkshire Hathaway when on public, you shouldn't buy these shares because we don't care about you. We're only going to manage this for our for our LPs, for our customers. Of course, what that did at the time was it created a feeding friends. It's my orientation, but it's also the orientation of Jim Senegal and Steve Schwartzmann. They're owners. None of them have ever sold a share. They want to build something great. They have that ambition. So did I. And it's it's I I think that's I think the best companies in the world, that's how they run. If you start worrying about the short term, you start making suboptimal decisions.

SPEAKER_01 32:00

Costco competes every day against Amazon, okay? And the history of both businesses couldn't be more different. And so you you you take that culture and evolve it so rapidly and so quickly so that it becomes competitive. What have you learned watching that business that's different than any of the other businesses you've overseen, bought, run, et cetera?

SPEAKER_00 32:19

I've never seen a company that sticks as religiously to just exactly one thing and doing it really, really, really well. Uh where Costco beats the competitions, it just executes much better. No one else is as efficient, as driven. They never get fancy, they never think about what other businesses could I add. And and they have these really, really strong principles of customer first, customer first, customer first. We call them members, but members first. And then employees. And then if we do a really good job for customers and our employees, thank you very much, shareholders. We'll do fine over time. But if you want to sell tomorrow, great, go sell tomorrow because you're not a shareholder anymore.

SPEAKER_01 33:05

And the $1.50 hot dog uh measurement criteria is legendary, of course. And I think Jim has said if if the price ever goes above $150, then he's gonna kill somebody, whoever doesn't.

SPEAKER_00 33:15

I think he said, I I think it was, what will it mean if the price goes up $1.50? And I think Jim said it'll mean I'm dead, but I don't think he's gonna kill it. That's kind of odd because it never used to quite be that way, and it's taken on this cult almost like a meme in the last few years. At some point we'll probably have to raise raise the price, but not on your watch. Not on my watch. I don't want to face Jim, or I don't want to face the press storm.

SPEAKER_01 33:40

You also care an awful lot about retirement and people in this country having enough money in their old age. So on the one hand, you're a capitalist, but on the other side, you're obviously a lifelong Democrat and you've devoted yourself to a lot of public service elements that we'll talk about in a moment. But you wrote a book in 2016, which you believe is a solution for retirement for people in this country. Can you talk a little bit about your philosophy on that and what you see going on around you today?

SPEAKER_00 34:07

When you're lucky enough to have the access and the influence and the resources that I fell into, I feel like it's everyone's obligation to give some of that back and to try to make the rest of the world better. When it came to retirement, because we do manage pension funds and 401ks and people's savings, the problem of retirement security was front and center for us. We watched pension funds dwindle and and and define contribution plans, 401ks grow up, but people weren't investing well. And and retirement security was back then the number one worry of people in America. 80% of Americans worried about that, including people right out of college that have huge student loans, but they worried more about their retirement security. That says something. And we are not on a good trajectory. Um Social Security isn't necessarily running out of money, but it's certainly wheezing. Uh savings rates are going down. Um the boom in the stock market that really went from an in American economy that went from World War II into the into the 90s may not continue. And so no one was talking about it. So I felt like we needed to call attention to the issue politically and in Washington. And and the best way to do that was to come up with a plan that worked, but that wasn't so offensive to Republicans or Democrats that one side or the other just completely rejects it. Because then you have nothing, then there's no dialogue. So our challenge was to come up with a plan that could appeal to both sides so they'd be talking about it. And we had both Republicans and Democrat supports. And we came up with a plan that's that really made a big difference to the problem over time with no new taxes, uh, no increase in the deficit, and no new bureaucracy. It just repurposed a lot of what's there and it worked. And it worked partly by changing some flows, but partly also by investing better. Investing capital better is in a way costless to the taxpayer or to the government and good for the economy because there's more capital that goes into growing the economy. So I found a labor economist and her ideas and mine kind of dovetailed. She had half the loaf, I had half the loaf, we put it together and wrote this book. Most importantly, we wrote it so that a senator or a congressman could skim through the whole thing on the train from New York to Washington. If it's some big policy tome like that, they're never going to get through it. So I wanted them to get the whole thing and get the big ideas. But at the same time, be academically rigorous. I think it accomplished that. Um, it certainly called attention to the area, and a number of the ideas in there have been embedded in new legislation, although not taken as a whole, but we didn't expect that, honestly. Trevor Burrus, Jr.

SPEAKER_01 37:01

But it would be remiss of me if I didn't ask you a question about your thoughts generally about the country and the world going. Obviously, AI is a huge part of it, but I know you study this thing intensely, and you still obviously have your own company that does investing day to day. So what are your thoughts?

SPEAKER_00 37:15

Well, I'm a huge believer in America, honestly. I think it's got remarkable entrepreneurialism, creativity. Uh capitalism can be excessive at times, maybe, but it's a it's a foundation for growth. Aaron Powell If you look at incomes in constant dollars, in 1967, 5 percent of the population earned over 150,000, over 30 percent in 2024. So many more affluent people. At the low end, 38 percent of the people earn less than $50,000 in 1967. It's 21 percent today. So people are better off. We talk about income inequality, and sure, you've got tons of tech wealth. Look at Elon Musk, never been more a richer person, but a lot of people are getting better off. And I think that can continue. And I think AI is going to be fuel that drives that further and faster. Aaron Ross Powell, Jr.

SPEAKER_01 38:10

You're an optimist about AI?

SPEAKER_00 38:11

I see risk and I see some economi I'm not I'm not talking about values, but I think AI can significantly juice productivity and welfare and people's welfare in America. Trevor Burrus, Jr.

SPEAKER_01 38:24

Public service, which we haven't really talked about. You obviously served at the Port Authority here. You were asked by President Obama to be Secretary of Commerce and you turned it down to stay with Blackstone. You're the chair of the Met, you're on the board of multiple things that are for not-for-profit status. That whole point you made about giving back, I think, is central to what you believe as well. I think you've lived that mantra for your entire life. Why did you decide not to go into government?

SPEAKER_00 38:50

Part of it was the job. The key task they wanted for that job was to reorganize the Commerce Department with other departments. And wow, that seemed awfully bureaucratic and frankly like uh tilting into windmills, you know, pull tax out of here and put trade in there and so on. Who what what a what a waste of time, really. And then when I tried to uh figure out whether it would I would be the face of the administration to business, which I thought I could be good at, that wasn't really what they wanted. And then I when I tried to see if I would have a seat at the table when the key decisions were being made in the White House about the economy business, not sure that's what they wanted either. So the job had its issues, but beyond that, I decided ultimately I wasn't going to be as effective in Washington, just as a personality type. Um I try to be very direct all the time. I try to never, I don't really pull punches, I have no power base down there. I could see the country bumpkin getting shredded down there. But probably more important than all of that stuff, I had not drunk room the successor yet at Blackstone. And so the good thing about that is it started me on that process. Right away, when I realized, gee, even if I'd wanted the job, I I really couldn't take it without abandoning my responsibilities to Blackstone. I said, okay, I maybe next time I'll get a different offer, my circumstances will be different, but I better have a successor. And I started grooming John, and I I was really lucky to have such a remarkable person.

SPEAKER_01 40:24

So when you look back on this amazing life, which hopefully has many years to run, what are your reflections? What are your learnings? What do you think about that kid that grew up in Boston and lived in that family and all the Sephora and all the things that you have been through in your life? You've you've lived a thousand lives.

SPEAKER_00 40:44

Well, you you're nice to say that. I uh I guess for me, I have to be busy. Um I think it's a bit compulsive. But I also so like contributing to building great institutions. Not just DLJ and Costco and Blackstone, but the Met or Mount Sinai Hospital System, a charity I started to to help HBCUs uh in America. I just love building things that make a difference. And it's the ultimate ego gratification, I guess, in a way, to look back and say, I'm proud of that. And it'll it'll live beyond me. And and I know from my own happiness and mental uh acuity and group of friends and so on, being in the world to be engaged with all these things. Some of them are hard, but it feeds on itself. And that that's where I get that's where I get everything.

SPEAKER_01 41:48

This part of the show is called the Uncharted Walk. We're going to give you questions that you haven't heard before, and you have to give me quick responses. Give me an example of a decision that you've made that you thought at the time you had doubts about might have been the wrong decision, but turned out to be okay because you listened to people around you?

SPEAKER_00 42:05

Right after we went public, we bought GSO. We spent a billion dollars on a small team, on a small fund with no tangible assets. Well, the market was declining.

SPEAKER_01 42:17

Other than that.

SPEAKER_00 42:18

But it worked out all right. They built an $80 billion business, so it did work out okay, but it was a hairy decision. What person in your life has been the most influenced? I'm not sure there's any one person, but but a few people jumped to mind. Steve Schwartzmann, just his ambition, his ability to dream big, and his belief, like I think Steve Jobs or Elon Musk, that one person can change the world. I didn't used to think that, but I've learned from him at Kent. Charlie Munger was a great mentor of mine for 30 years. Loved Charlie. He had such clarity of vision. So often I would call him up and say, Charlie, I think I'm getting confused here. And he was never confused, never confused. He was great. Jim Senegal, I as I mentioned, I think one of the greatest CEOs I've ever seen. And the purity of his vision and sticking to principles, I've never seen anything like that.

SPEAKER_01 43:09

When was the last time you changed your mind about something and it turned out to be, you know, a very important decision that you didn't expect to make, and then all of a sudden you change your mind and something else happened?

SPEAKER_00 43:21

I think if I've changed my mind to correct judgment errors, more often than not, it's about hiring people. They've disappointed in one way or another. And that's a tricky thing. You hire, you hire all the people that you do hire when you're building an organization, you never get it 100% right. And it's hard to make to go back on that. I believe that changing one's mind is a strength. You've got to make decisions fast, I believe, and clearly, but they're not all right, so you got to fix them. And when facts change, when uh when you see new ideas, you should change your mind. And I think being nimble about that is one of the things that's made us so good. What?

SPEAKER_01 44:01

Is one or two things about you that people watching this would never expect, would never know?

SPEAKER_00 44:06

Well, here we are in New York City wearing blazers. Where I really love to be is wearing my chaps and my cowboy hat and my cowboy boots and riding horses and moving cows from one pasture to another. It's just fantastic. And how often do you get to do that now? Oh, three or four times a year.

SPEAKER_01 44:25

What part of your personality have you worked to keep in check or develop over the course of your career?

SPEAKER_00 44:31

Well, I have a tendency to be uh quick to have an opinion and blunt in terms of articulating it. And I learned the hard way that those can be uh characteristics which which come across as threatening or intimidating. And so being softer, keeping my counsel, waiting, letting people have their say, uh, being sure to mix a lot of compliments and reinforcement and recognition into the mix, just softening the whole picture.

SPEAKER_01 45:06

Okay, last one. Best piece of advice you ever received, and piece of advice you outright rejected, and we're glad you did.

SPEAKER_00 45:14

The latter, I would say, is many, many times in my career, or or when I'm dealing with speeches or make or other things, dealing with people, broad groups of employees, I've been told to dumb it down. Are you able to do that? I don't think so. I'm definitely able to do that. I make plenty of dumb mistakes. But I I always feel like, no, I'm gonna, I'm gonna set a high bar and I'm gonna have the confidence that the audience will rise to the occasion and will will understand it, will believe, and will appreciate it. And I've always so I've I've found that works better. I don't know the best piece of advice, but one that stands out when I from when I was really early in my career is I had a I worked with a great lawyer and we went down and we had a drafting session. He said, Tony, you can't win a war if you try to win every battle.

SPEAKER_01 46:01

He was right. Turns out he was. Well, you've won a lot of battles, and you've won a lot of wars, and I know you will in the future too. Thank you for spending the morning with me. I really enjoyed it. You're a great man. Thank you, Tony.