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Business Judgement

Tuesday, April 1, 2008 - 10:14

Craig Drummonds brief is to lead investment house Goldman Sachs JBWere to No.1 in the Australian market. It's a CEO role that sees him act as strategist, salesman and firefighter. By Jennifer Alexander

When New York-based investment banking giant Goldman Sachs and Australian stockbroker JBWere formed a joint venture (GSJBW) in 2003, the pundits weren't surprised. The 160-year-old Melbourne establishment was the last all-Australian firm to hold out against the tide of mergers with British, European and American investment banks.

What was surprising was that in three years then chairman and CEO Terry Campbell built up the entity from middle-ranking player to come in at No.3 in the cutthroat Australian market. His successor, Craig Drummond, who took over in February 2007, has a clear brief: make GSJBW top dog in Australia.

It's an ambitious goal to knock off Macquarie and UBS Warburg, the two investment banking houses that regularly swap the No.1 and No.2 spots. However, in a sense it's a job that Drummond has been building up to for 21 years.

Drummond graduated from Melbourne University with a Bachelor of Commerce. After completing his professional year at KPMG, he spent five years as a chartered accountant before joining JBWere as a stock analyst in 1986.

As well as a number of short courses to keep his skills up, in 2001 Drummond attended the advanced management course at the University of Pennsylvania's Wharton Business School.

Now that he's in the chair with a big, hairy, audacious goal, Drummond sees his role as that of a strategist, high-level salesman and firefighter.

Q: Could you outline your role?

A: As the Chief Executive, my role is to set the strategy inside the firm and undertake high level interaction with clients. By high level, I mean being involved in major corporate pitches or major client issues.

It's also about recruiting the appropriate people for the organisation, motivating them, and overviewing the direction of the business. Of course, it also includes making sure that our people have a clear vision of where we're going as an organisation, articulating the principles that sit behind the vision, and working on the strategies to get us there.

Q: Were you identified as being a potential leader for GSJBW before securing the position?

A: Historically, the company has had a good succession planning process. Most recently, Bruce Teele identified Terry Campbell, and Terry identified me.
I have a number of business leaders inside our organisation that I'm looking at for the future. Succession planning and people development is one of the crucial things that we must do in a professional services organisation.

Q: What do you enjoy about your job?

A: I most enjoy dealing with and providing our clients with the satisfaction of a great outcome. I also like dealing with and developing people. Organisations in our industry thrive on recruiting and developing the best people. We have a Goldman Sachs University that travels around the world, and we've developed a leadership and learning group here in Sydney that uses global and local coaches. Bringing that sort of resource to our people is a phenomenal experience for them and has been a key initiative in our attempts to attract and retain talent.

Q: Do you have a specific agenda?

A: Certainly. My overall vision for the organisation is to be the leading investment bank in Australasia. We define the success of that as exceeding the expectations of our stakeholder groups: clients, our own people, the community, and our shareholders.

If we exceed our client's expectations and deliver outstanding results, this will create opportunities for our people. If we do a great job for clients and have the best people, we will be able to fund our community involvements. We will also be able to exceed the expectations of our own shareholders, who are 100 local executives with an expectation that we earn post-tax return on capital of 20 per cent.

Q: Often mergers are thought to be problematic. Has this been a successful one?

A: Yes, it's been an incredibly successful merger from our point of view. First, by bringing two phenomenally good brand names together, we have been able to deliver the best of a global and local situation to clients.

Second, we have been able to attract some outstanding people. To give you an example, we had 1800 people apply for 30 graduate positions last year. I believe our first 27 choices came with us. In a labour market that is pretty tight, to have that many candidates apply for 30 roles gives you a sense about whether people want to work in this organisation or not, and whether the brand has cache.

Third, we have continued to win a very large share of the major corporate flow in this country. And I suppose if you look at the major deals we have won with, for example, Telstra, it has helped to validate the organisation.

Q: Is it just the numbers, or is judgement needed in financial decision making and to avoid risk?

A: Ultimately, what underpins our work is our assessment of the financial numbers. We first look at a detailed financial analysis as to whether a transaction makes sense; whether it is aligned to our corporate strategy, for example. Once the financials are finalised, considerable judgement is involved and based upon the very best expectations of our sales trading, underwriting commodities and fixed interest equities specialists.

For sure, we have a very clear delegation in terms of the dollar amounts of risk that people can take. We are managed through a committee structure; we have a compliance committee, a risk committee and a capital committee.

The bigger decisions are made at a committee level – who may choose to refer a decision to a smaller group of the committee – some of the more senior people. There's a very clear delineation and it's made very clear to everyone what decisions need to go up to the various committees and who is ultimately accountable.

Q: So there's a clear governing structure supporting the judgement of risk?

A: Yes. It's very important to educate your people as to where and how decisions are made. We are in a business where decisions need to be made in minutes. For example, a large institution may say 'I've got 10 million BHP shares to sell and would you like to buy them?' We say, 'How long have we got to get back to you?' They say, 'Fifteen minutes.' So, you have a quarter of an hour to make a 200, 300, perhaps 400 million dollar decision.

Q: How would you describe your leadership or management style?

A: It's very open. I aim to be very inclusive. I believe in getting the right person in the first place, but then giving them a lot of freedom to run their business.
Of course, as I've mentioned there are boundaries, but I don't believe in sitting over people.

Also, we have a culture of encouraging 'bad news up'. I want to hear the bad news first so that we can address it. And, given risk management is so important to us, we do have a series of limits, so people can only make a decision up to a certain dollar amount and then it needs to get referred up.

Q: How do you define leadership as opposed to management?

A: In this organisation we are very focused on growth; we're not solely focused on managing the business. We don't remunerate people just to run the daily business – keep it turning over, running it in a steady state, and so on – what I regard as managing. That's not what we're about; we're actually about building new business lines.

In our business, and it's the same with a lot of corporations in the world these days, businesses commoditise very quickly. So today, 35 per cent of our sources of profit were not even in existence three years ago. That's the sort of leadership challenge we like to set ourselves. Not only just to set the vision, the strategy and to make sure all of your senior staff are rowing the boat in the same direction. It's about growing the business.

Q: So, in your opinion, what are the key capacities that your leaders need to be able to do that?

A: It's a given that they're competent in their chosen field. What differentiates, in my mind, outstanding leaders from average leaders is emotional intelligence. It's the ability to read situations, read people, and be empathetic in terms of the decisions you're making, because again, in a professional services firm, so much of it is about people.

Q: Can you give an example of a situation in which emotional intelligence was important?

A: A number of our competitors decided to close down parts of their Melbourne businesses, because the financial capital of Australia is Sydney. We looked at the decision and it's just not something that we want to do. Financially, the numbers suggest we could perhaps get a better outcome. But the relationship we have between senior leaders in Melbourne and Sydney is valuable; to go ahead on a purely financial basis is not the right decision to make.

Q: Can leadership and management skills be taught?

A: I think management skills can be learnt, but I'm not sure leadership can. Yes, people grow into and become more comfortable in a role; but I haven't seen too many examples of average leaders growing into becoming great leaders.

Q: Do you have a key message for young people wishing to achieve in management and leadership?

A: Two things. I know it is an old adage, but hard work is one of them. The other point I would make is to find a point of difference. Don't do what everyone else is doing, either inside or external to your organisation. That was something I consciously set out to do when I was an analyst. I would not write or say anything that I knew my peers were saying. It was just a waste of paper or breath. And even if you spend a third of your day thinking about how you're going to be different, that's time well spent.

Q: What are the essential qualities you look for when bringing young bankers onboard?

A:To get a job here is not simple; it's an extremely thorough process. While we don't do psychometric testing, candidates will meet dozens of our team members; 15 or 20 interviews is not uncommon.

Clearly, the first essential attribute is outstanding academic performance. Then we look at their interpersonal skills. Historically, there's not been such a focus on this. Rather, it's all been very focused on academic performance; everything else was just meant to look after itself. But in a people business, we're asking our young people to relate strongly to clients, and interpersonal skills are particularly important.

We are also looking hard at diversity. There is absolutely no question in our mind that our industry has done a very poor job on diversity. Not only just women, but also ethnicity because we need to reflect the community we operate in.

Q: Have you had mentors?

A: I have. Terry Campbell's probably the most recent, someone who I have a great deal of respect for both commercially and as a person. The other mentor is George Parsons, a US-based executive coach I've seen since 2003. He's done a lot of work for Goldman Sachs globally, but has also done a lot of work for large Australian listed corporations. He's been phenomenally helpful, looking at me as a person, who I am, what I stand for, what I want to achieve.

Q: It helps to have a mirror held up to yourself?

A: Very much so. As an organisation we do online 360 degree reviews. So we hear what our subordinates and superiors think about us as people and our performance in the role. But George sits down with a whole range of people that interrelate with me and asks 'What do you think of this guy? What are his strengths and weaknesses? What's he need to change, what's he need to do more of?'

Q: Have you found out anything surprising?

A: One thing that people felt about me, which surprised me a bit, was that I was sometimes too quick to come to a decision. It is a function of this industry where quick decisions need to be made. And yet, I like looking at the facts. I appreciate that it's something that I've needed to be better at.

Q: Any learning experiences that have stood you
in good stead?

A: Placing appropriate focus on performance management is viewed as important. People need clear feedback on their progress, particularly if you have higher expectations around their performance. Setting goals and clearly communicating them is key to maintaining focus on team performance.

Q: Finally, what is your point of difference?

A:The point of difference I work hardest on is to grow the business, not just manage. I could comfortably sit here and manage what we've got. We've got 1500 people in Australia, with six core businesses doing lots and lots of interesting things, but that's not the main game. The main game is growing the business.