 From theCUBE Studios in Palo Alto in Boston, connecting with thought leaders all around the world, this is a CUBE Conversation. Hey, welcome back everybody. Jeff Frick here with theCUBE. We're in our Palo Alto studio. It's still 2020. We're still getting through the COVID crisis and we're still reaching out to our community really to talk to leaders who have led through difficult times, led through transitions and really go out to the experts and get some advice from people who've been around the block a few times. And I'm really, really excited to have one of my all time favorite business executives joining us. I haven't talked to him in years and years and almost decades. David Potrick is joining us. He is formerly the CEO of Schwab, how he kind of made his name. Now he's an author. He's teaching at the Wharton School. He's a New York Times bestselling author and he's also the chairman of Red Eagle Ventures. David, great to see you. Thanks, Jeff. It's good to be with you today. Absolutely. So before we get in, just to check in, how are you doing? How are you getting through kind of 2020? I can't believe we're already on the backside of this crazy year. Well, it's been a pretty challenging year, as you know. And we've seen companies learn to operate in a virtual world. Zoom has been one of the huge beneficiaries, but technology companies in general, the whole Fang group of Facebook, Amazon, Netflix and such, they've all benefited from people getting more virtual. And one of the non-profits I'm involved with sends out videos to schools on social and emotional learning and that's seen a big uptick. So the world is changing and changing in very substantial ways. And I don't think we'll ever go back to the way it was in total. We will go back to having face-to-face meetings, of course, but I do think that operating virtually and doing more things remotely, remote business meetings over Zoom are going to be a fixed part of the future, at least in my opinion. Right. So the reason I wanted to reach out to you is you've managed through some crazy transitions and some crazy disruptions back in the day. And for a lot of the young people that don't remember, there was a time before we did everything online. There was a time where you had a broker and you called them on the phone and you paid a pretty big price based on a percentage of the transactions. You were at Schwab in the late 90s when this new thing called the internet came along and these new things called internet-only businesses to compete with you. I wonder if you can kind of take us back as you started to see some of these new kind of threats kind of coming not necessarily from people that you recognize from up and down the street, but people that are coming over horizons that you've never ever seen before. And how did you start to get a feel for the landscapes of changing? You know, it's really funny to look back that there actually was a day when something called the internet didn't exist. And there was no connectivity. There was no internet. And we were of course at that time a telephone-based brokerage firm what used to be called discount brokers. We don't use that phrase very much anymore at Schwab, but we were a telephone-based discount broker and the internet popped up and started becoming commercialized and some online-only brokerage firms popped up. And these firms didn't have call centers. They didn't have branch offices. If you wanted to do a trade, you did it over your computer online and the pricing was dramatically less. To give you some idea for to buy 100 shares of IBM, Merrill Lynch would have charged you $250 for that one trade. Schwab would have charged you $80 and E-Trade would have charged you $20, $25. So we were much cheaper than Merrill Lynch but E-Trade was much cheaper than us. So we were at the time we were worried about is there enough security on the internet? Can we do trades? We have a reputation to protect a brand new company. They don't have a reputation to protect. We have customer security. We have a reputation to protect. Well, we started doing online trades and the way we did it was we gave all of our customers a 20% discount on our normal pricing. So instead of charging 80 something dollars, you paid something like $60. So it was a nice discount. Customers liked it. They were doing online trades and we're seeing that is just taking off. It's getting huge and we're getting great press. The analysts love it. Wall Street loves it. We're a public company and it's going great. But of course, at the same time, I'm getting, I mean, like a basket full of letters and emails from our customers saying, why can't you do trades for $25 like E-Trade? Why are they able to do an online trade for $25 and you're charging $65? I thought you stood for value. I thought you guys wanted to be the best value for the money. So I'm in this dilemma where Wall Street doesn't see these letters. They don't get reported. I see them and their dozens and then hundreds and then thousands. We have millions of customers to get a thousand letters or emails in a month. That's very possible. And so I go to Chuck with this and I said, you know, I think we need to make a change because no great company was built on the back of unhappy customers. Right, right. But you know, it's so funny, not funny. I'm sure it was a huge challenge in the moment, but you know, Clayton Christensen's another one of my favorite business leaders and why I like him so much as is in Rest in Peace he passed earlier this year is his very simple statement and innovators to limit that smart peeping, making sound business decisions based on their customer feedback will always miss discontinuous change. You were right in the middle of this thing and you had to get discontinuous change. And it's funny, you've mentioned quite a bit in some of your other conversations about looking for faint signals. Well, this was not a faint signal. This is pretty much sounds like came up and banged you over the head. So how do you make and convince the rest of the people of the team that this is kind of a short-term pain, but it's a long-term gain or really thinking about this long-term relationship with our customers, even though it's going to cost us on kind of a per transaction basis in the short term. Well, I had our financial staff run some models and show me what would be the impact if we reduced our pricing from 60-something dollars a trade to $29 a trade and the assumption of more and more trades moving to the internet. We also had a model into that, the fact that people trade a little more when prices go down, costs go down because I don't have the cost of someone answering the telephone. So there were some benefits and I had to run the math to understand how long would it take us to go through the trough to get to the other side? A big important part of this is modeling the numbers. You don't just make this decision as a public company and just hope for the best. You need to model it out. You need to run math and say, how long will it take? What do we have to assume? What do we need to do? What costs do we need to cut? How are we going to protect ourselves as best as we can? And we knew that the math said that our profitability will go down 25% when we make this change of internet pricing. And we expected that Wall Street would be so upset because they didn't see this coming. No analysts saw this coming because they don't know about complaint letters I'm getting. So analysts would be upset and the stock would go down 40%. Going to your board and telling them you want approval for a 25% reduction in profits and a 40% reduction in your stock price is not what you want to do as a CEO. You don't want to go to your board with that. And when they ask you, well, how sure are you that we're going to climb out of this? You say it's going to take 18 months. What if it takes three years? I didn't see the choice we had. Honestly, in my heart, you don't build a great company with an increasing number of unhappy customers. I didn't think we had a choice. And Clay Christensen was one of the consultants that I used to help me think all this through because it was really hard to make this change, Jeff, because we were doing so well. Ostensibly, we were killing it. Right. So it's interesting. I wonder if you can contrast it to what's happening, say now with COVID, right? It was this, didn't sneak up on anyone. It was a really kind of a light switch moment in mid-March where suddenly everybody has to work from home. All your digital transformation initiatives are now put on fast forward, but we still have this situation where there's a variety of potential outcomes in timing that's really hard to gauge. So when you're thinking about managing through change with imperfect information, and you almost have kind of, will we go back to normal? Will we stay where we are now? Or some spectrum in between, how do you help people think about how they should come up with contingency plans and think about kind of managing through a number of options with imperfect information and really kind of no clear line. You said you had an 18 month kind of ROI that the analytics point to. We're not really sure how long this thing is going to go and what it's going to look like when we get to the other side. Well, I think there's two issues there. One of them is how we get through this pandemic period. Until we get to, there's three things we need. We need inexpensive testing that is not done by a professional that we can do at home to see if we're sick. That's number one. Number two, we need a treatment that helps us get through this and get to the other side without dying. We need the fatality rate to even drop further. And number three, we need a vaccine. So those are the three things that we need that the world is working on, all three of those. And my guess is that in the first half of 2021, we will have all three of those. We'll have all three of those and this will be a thing, basically a thing of the past. So, but I don't think the world goes back to exactly the way it was. People have learned they can have very effective meetings without everybody flying to Chicago or New York or Los Angeles. They can do it over Zoom. That doesn't mean meetings go away, but I think they're gonna go down in numbers and more online things are going to happen. More people are gonna be working from home at least part of the week. It's gonna be different. Those CEOs who sit in a somewhat of an ivory tower and get numbers fed to them from their financial staff and they're not out talking to customers directly. People look at that as anecdotal information. I think it's more important than that. I think you need to see the passion behind the voice and the eyeballs of some of your best customers to understand what's going on with them and a lot of CEOs don't actually do that. Right. You made a really interesting comment in another interview that you did earlier and you talked about the high gain question and one of the challenges of all CEOs is nobody wants to be the one that tells the CEO bad news whether that be someone on your staff whether that be some lower level person who's on the front lines and really knows there's some broken things or whether it's a good customer as you said in kind of a social setting, how are you doing? Oh, we love you, blah, blah, blah. But as a CEO, you really have stressed that that is some really important, hard to find and hard to kind of filter information up to the executive suite. So what were some of the tips and tricks you used to make sure that people either, A, weren't afraid to tell you bad news and B, that you could kind of go out and sniff it out a little bit more creatively than just kind of waiting for it to come through in the weekly reports? Well, obviously, you know, I think all kinds of executives get out and they talk to their customers on a regular basis. They're out and they're talking to them. The problem with those kind of discussions are no one wants to be disrespectful. People want to be nice in those meetings by and large and you ask questions, how are we doing? Oh, you guys are doing great. Meanwhile, the guy who tells you you're doing great is also looking at some newer technology that might replace you. So that kind of question doesn't get you very far. So what we used to do to be quite specific is that we used to do a monthly luncheon where I had 12 of my mostly top executives but some people a level or two down, 12 Schwab people with 24 customers. And so there were tables of six, two of us, four customers and we had a theme that we would talk through. And the themes were always around things of if you had to pick out three things we don't do well, what would they be? Give the customer permission to be comfortable being critical. What are the three things that you've heard about our customers, our competitors doing that are better than us? What are the things that we need to change to make you even more delighted? You need to ask those kinds of high gain questions where there's no polite answer, you have the customer is permitted and given the opportunity to answer in a truthful and critical fashion. That's a great lesson. But as you said, give them permission and give them the forum ad and the forum to say some of those things so you get some of that information. Another great leadership principle that you shared many times I want to dig into a little bit is kind of motivation versus inspiration. And that those are often confused but very different concepts in the way that you lead people. I wonder if you can dig in a little bit on your philosophy on those two things. Sure. You know, it's funny, those terms motivation and inspiration are used almost interchangeably as if they're the same thing and they're not. Motivation is fundamental in business and it's the exchange of behaviors for rewards. I was a psychology major in college. This was one of the things we learned about the exchange of behaviors for rewards and that's motivation. Inspiration on the other hand is the effort to make people want to do something for not full rewards that are tangible but to be part of something great. We want you to be part of a movement. We want you to be part of something special, something that's gonna change the world for the better and trying to get your employees to buy into this notion that we are on a mission and that mission is to make the world a somewhat better place. That doesn't mean we don't make money. Of course we make money, but we're also out for more than a financial bottom line. We're out for a bottom line that's great for customers and may be pretty great for employees as well. So it's interesting because have you seen them, right? You've been in finance forever. It's always about the shareholders. You've talked about the stock price of a number of times in terms of a measure but it seems like more kind of purpose led or purpose forward organizations now are more appealing to kind of the younger generation. I think the search for a little bit more meaning in your day-to-day job and what that company is all about seems to have elevated over the last several years and taken a higher role in what these to call like triple line accounting. You know, is it not only your shareholders who always are at the top of the list or have been traditionally but your customers, your employee and more and more either your community and even the environment. Have you seen, you know, kind of a swing towards it's not just about shareholder value? Well, not on Wall Street. I think, you know, Wall Street is about money. Yeah. And the people who go to work on Wall Street and the way Wall Street operates, it's measured in dollars and cents and share price and profits and distributions to private equity partners and so forth. It's a numbers game and it is a profit game on Wall Street. You know, we should be honest about that. It is what it is. Sure. And I have yet to see the Wall Street firm that is talking about triple bottom lines because that just doesn't happen very much on Wall Street. It doesn't happen from my perspective. It almost doesn't happen at all. But there are other companies where they do talk about a more triple bottom line. And I think as a leader, if you want to be that kind of company and you want to be that kind of leader, you have to be comfortable talking about that and not feel embarrassed by it and not feel that, oh, that's too airy fairy that's too goody two shoes. If you really believe that our goal is to have a triple bottom line, profitability, great for employees and great for customers and the world at large, then as a leader, you need to talk about that. You need to be willing to stand up and have those kinds of conversations and let yourself be challenged by perhaps the press, employees, shareholders who think that that's not a good strategy. I believe that in many cases, that's a great strategy because on a long-term basis, you don't want every employee in your company and all of your senior executives to basically be up for sale that if a bigger job comes in with a bigger compensation, they're out the door. You're looking for loyalty. You're looking for buy-in, for participation, for wanting to give every bit of themselves for the mission of the company. And as the CEO, if you want to take that path, you got to be willing to put yourself out there and talk about it and suffer the slings and arrows from those who don't believe that that's the best path for the company. Right, right. Well, that's another thing that you talked about quite often is really that the company feeds off the passion of the CEO and the CEO has to have that passion because they're looking, they're watching, they're looking at your moves, they're looking at what you say, they're looking at your body language, they're looking at everything that you do. And I think within the context of these transitions in these difficult times, you have another great line that you've used a number of times, which is you need to have a perception of momentum. I love that line. So everyone needs to think that we're on the right path. We're not there yet. I feel it. He looks like he feels it. He looks like he's confident. So now I'm confident and I'm going to jump in and help be part of this change process. You've seen that time and time? Well, momentum is a tricky thing. You can have momentum and not have the perception of momentum because if you're doing a turnaround, what often happens is in the early stages of the turnaround, the numbers start to change, but they're small and you really haven't seen, it's not a steep, the turnaround doesn't go steep. The turnaround goes and builds slowly. And what you need to be measuring in the beginning are kind of the inputs and behaviors rather than the output sales and profits. Those take longer, but you need to build belief. You need to build buy-in because it can take a long time before things start getting better and you don't want your best people to wonder whether this is the right move, should I be looking for another job? So you have to build the perception of momentum even as you're building the reality of momentum. Right, right. So another thing we cover a lot of tech conferences, obviously cloud and AI, machine learning are hot things, but it always goes back to the big three. It's the technology, okay, but it's also people and more importantly, I think that gets left out as process. So when you're thinking about your management and again, especially through a transition or a difficult time or some unknown and choppy waters, how do you think about those three, prioritizing those three and organizing those three between people, process and technology? Okay, well, you're always looking for technology that can be implemented to give you productivity, best of, better customer service. You need to be monitoring what your competitors are doing and be looking out sometimes at the bleeding edge where you don't need to implement those kinds of changes right away, but you need to know where you want to go down the road. So you have some sense of that. As far as process goes, your processes are both a strength and a weakness because the strength of how well you run your processes today is also how hard they're gonna be to change tomorrow. You know, companies are built for predictability, reliability, risk minimization and all of your processes are built for those things, but those are also the things that are the opposite of big breakthrough changes. So you need to be thinking about, are we strengthening our processes, but also if we have a change coming that's going to require a change of some of those processes, how is that going to get in our way and how are we gonna get past that? Right. I've left people for the last because to me that's the heart and soul of a successful executive. One person never gets everything done. It's all about the quality of your team. You've gotta be a recruiter. You've gotta be always on the lookout for new talent that can help your company and you gotta be thinking about how you were gonna recruit that talent. You have to be a magnet for talent. When I sit on boards and I talk to the CEOs, I ask them what are you doing to be a magnet for talent? What does that mean? What are you doing for great people to want to work for you, for you and your company? What are you doing? How are you reinvesting in people? How are you putting time and energy in their professional development, in their growth, how are you getting to know them? How are you understanding their ambitions, their hopes and desires for the future? How much time and effort do you spend on that? And that's all part of having people not leave. Everyone, in a way, you can look at the world and think everyone is for sale. But you want people that are not for sale that are committed to you and committed to the mission. And in today's world where everything seems so fluid, I know my ideas about this probably seem very old and perhaps out of date, but I still believe in them with all my heart. That you want people that are committed to you and what we are accomplishing together. And you have to be reinforcing that with your words and even more importantly with your actions. Yeah, I think it goes back to your inspiration. I mean, people are much more motivated by inspiration than just collecting a paycheck or getting a compensation back for what they're doing, which is a great segue to kind of the last topic I wanted to cover with you. And I remember this, we had dinner, I think it was in 1996 as it's Wharton's, Y series and you were such a phenomenal speaker and I remember asking you the question, I remember your answer and I repeated it ad nauseam for the last 20 years. We said, David, you're such a great speaker. Why, how? And you were so matter of fact in that you just said, hey, it's an important part of my job. I treated it as a skill, I hired a coach, I practiced like I would do any other skill. And why that's such a powerful story is you clearly are in a position of power. You could clearly have a crazy ego that got in the way of such kind of a matter of fact, accomplishment of these tasks and all the PR people I talk to and they hear the story, oh my gosh, we got to get them talking to my executives because so many people let ego get in the way of what is really an important task for CEO and a leader which is communication and you recognize that early on and really went after it to make sure that you were very good at this very important task. Well, what happened to me, I got lucky. I got lucky. When I got promoted to be the CEO of Schwab, I knew I was gonna have to do a lot more public speaking and I already thought I was pretty good at being a public speaker but I thought I needed to fine tune my messaging. I needed to get it better. So I looked around and I got some referrals and I hired a guy that I thought was gonna be a speechwriter for me that would help craft the message. And we had our first meeting and we're talking about an upcoming speech and he says to me things like, well, Dave, I wanna know more about your life. Tell me how you grew up. Tell me what your proudest moments were. I wanna learn about you. And I said to him, Terry, I'm not looking for a biographer. I want a speechwriter. I need a guy that can help me craft my message. And he said, well, Dave, that's not how I do things. I need to know who you are. I need to know what your passions are and where they come from so that we can give a message that has more than just words. It has meaning. It has your passion built, excuse me, built into it. That's what we need to do. And that's what Terry taught me was that it's not just the words, it's also the passion, energy and meaning and connection behind the words. And I wanna mention one other thing that I think is very important. When people talk about being really good communicators, they often talk about speaking. They don't focus on listening. And listening is a tremendously important skill. So for example, you give a speech, you're the CEO or your senior executive, you give a speech, do you stay there and do you do a Q&A session? The Q&A session can even be more important than the speech sometimes because all the employees know that the speech is something that was prearranged. It's not on the cuff, it's something that's been thought about and prepared but the questions and answers are authentic and in the moment. People are clamoring for authentic leadership. That Q&A session where you're listening for the question and maybe the question behind the question. So you're not just trying to get through them as fast as you can but you're trying to really answer and listen for the question and the question behind the question and then answer those from the heart with passion and that's how you will score the most points with your audience. That's great. And then who knows what comes from it and getting ready for this. I came across your blog post talking about Gopi Kalyle, mutual friend at Wharton who reached out to you after that same dinner and you were happy enough or you were kind enough to respond and grow a friendship and a relationship that again has lasted for decades. So that's such an important message to listen. As somebody said, right, God gave you two ears in one mouth. Should try to use them in that ratio. Well, David, thank you so much for taking some time. Again, I think these are really trying times in leadership. I think it's really an opportunity for great leaders to shine and those that don't, there's really no place to hide. So I really appreciate you sharing your insight and taking a few minutes with us. Thanks, Jeff. I hope all the people that follow you and listen to your broadcasts learn something today and come away with some benefit from this time we've spent together. Undoubtedly, undoubtedly. Well, thanks again. All right, he's Dave Potrick. I'm Jeff Rick. You're watching theCUBE. Thanks for watching and we'll see you next time.