Portfolio.com: World According to ...

Curtis Welling

Wed, 24 Dec 2008 05:00:00 GMT

As the chief executive of AmeriCares, one of the planet's premiere philanthropies, Curtis Welling oversees the distribution every year of hundreds of millions of dollars worth of medical supplies and services to the poverty-stricken and war-torn pockets of the Third World, but also to poor Americans at clinics in the Unites States.

The 59-year-old Welling, who has been running the private nonprofit since 2002, is doing good after doing well, having spent a quarter century accumulating a fortune on Wall Street (and getting to know Bernie Madoff in the bargain).

"He was just a very hard-driving, successful, creative equity business guy," Welling told Portfolio.com about his former colleague in an exclusive interview from AmeriCares' Connecticut headquarters. "I never had any reason to question any of his business principles.... I suspect what happened here was he had a trading strategy that went bad fairly early on in the game, and he just kept trying to trade his way out of it and it got worse and worse and worse."

Lloyd Grove: Let me begin by wishing you a Merry Christmas and a happy holiday.

Curt Welling: Thank you very much and the same to you. It's obviously an interesting holiday season.

L.G.: It is. I'm looking at your annual report and year over year, 2007 to 2008, you had a pretty significant uptick in donations, mainly in-kind but also cash and securities. What's going to happen next year, given the financial meltdown?

C.W.: I guess I would say a couple of things. 2008 was a high-water mark year in many ways for us as you suggested, and the image of 2008 gets smaller and smaller in the rearview mirror with each passing day. I'm sort of looking at it fondly the way one looks at a quaint little town one's driven through as one heads down the road to some unknown but perhaps less hospitable destination.

L.G.: Watch out for that 18-wheeler overturned on the highway, Curt!

C.W.: Exactly. We don't know what the road's going to be like, don't know what the traffic's going to be like, and don't know what the weather's going to be like. The period we're in right now is obviously the period of maximum uncertainty. It's uncertain because we're in the transition to the new administration, because we're uncertain with respect to who the leadership is going to be in the new administration, we're uncertain what their policy priorities are going to be—we're uncertain about what the economic environment is going to be. And so we're reflecting that uncertainty in everything we're doing here to think about how we're going to deal with 2008. It seems to be a virtual certainty that charitable contributions and philanthropy will be down this year as they only have been a few times since the Depression, and everybody's wrestling with the question of how much. The problem that creates for us is that we're in the season when typically philanthropy would be at its peak for individuals. And, as you know, AmeriCares is entirely supported by private entities—individuals, foundations, and corporations. We don't take any money from the government, so our uncertainty is a little more complicated than some other people in our space.

L.G.: Do you think you'll be affected at all by the Bernie Madoff debacle?

C.W.: I think it's part of the frame, isn't it. I don't know of any particular donors to AmeriCares who have had their wealth managed by Bernie Madoff.

L.G.: "Managed." That's a very charitable term.

C.W.: Yeah. I know Bernie. In my previous incarnation, a long time ago, I had the opportunity to spend some time with him.

L.G.: Is that when you were working for that quaint little town called Bear Stearns?

C.W.: It was actually before that—that quaint little town called First Boston. And this is just incredibly sad on a whole bunch of levels. This is going to sound like a funny thing to say, he doesn't need any defense from me, but I don't think he started out to create a criminal enterprise. I think he's like a lot of people that find themselves doing something they shouldn't do, and rather than deal with the consequences at the beginning when they might be trivial, he tries to figure out a way to bury them, and make things right and it just gets out of hand. And obviously this got out of hand in a spectacular way, but I don't think there's anything that's going to affect AmeriCares particularly as a result of that. We didn't have any money with them. I'm sure there may be some of our donors that had money with them, but I doubt very many. So this is just another odd picture in what is becoming sort of an odd montage this year. And I don't think anybody has a lot of conviction of exactly where it's going to come out.

L.G.: You got to know him when you were at First Boston. Give me your sense of the guy, and in what capacity was First Boston doing business with him?

C.W.: I was running the equity business and he was running a very significant over-the-counter brokerage business. We worked in the same industry together, and his firm was well known to be one of the most aggressive and successful over-the-counter trading firms. He was very creative. He was actively involved in creating the Cincinnati Stock Exchange as an alternative execution venue to the New York Stock Exchange. There's a lot of inside baseball here, but there was a time when you could only trade New York Stock Exchange stocks on the New York Stock Exchange, so when people were looking for ways to make money, create different execution forums, Bernie was very creative in developing the Cincinnati Stock Exchange as an alternative, and he was just a very hard-driving, successful, creative equity business guy. I never had any reason to question any of his business principles. His
firm was very a reputable, stand-up firm to deal with and they were a very big player in the over-the-counter securities market.

L.G.: I'm not a sophisticated investor. I have a 401(k) that, I have to admit, when the envelopes come with the statements in them, I can't even bear to open the envelopes anymore.

C.W.: That shows good judgment actually. My advice to you would be you take the envelopes and don't open them for about a year to 18 months. Everything will be fine then.

L.G.: So explain to me how ostensibly smart, knowledgeable, sophisticated people, including people who put their money with Madoff, thought it reasonable that in all kinds of market conditions, they should be getting 8 to 9 to 15 percent returns on their money year after year without deviation.

C.W.: Of course, it's why people like fairy tales, because they make you feel good even though you know they're not true. There's a quality in the investment community which is sort of like the willing suspension of disbelief—that everybody wants to believe that someone's found the ability to repeal the laws of gravity. And so, when people
are ratified by the stature of other investors who preceded them, they suspend their disbelief and their critical faculties because they want to believe and because they're a little greedy, and they go along. This is a spectacular example of a story that's older than the hills. The same phenomenon, you may recall, happened maybe 10 to 12 years ago with an amazing fundraising Ponzi scheme that had swept up, among other people, several senior partners at Goldman Sachs. I think John Whitehead might've been on the board of this organization where some fellow whose name I've forgotten, went around to a bunch of very high-profile charities and said, "I've got a great, committed group of investors who are social philanthropists who want to be anonymous, so if you give me $100,000, I'll give you back you $100,000 and 25 percent interest on it in six months."

L.G.: And the guy wasn't even Nigerian, huh?

C.W.: No, no, exactly. And that's the classic, the same thing. You don't have to have all the money, you just have to have enough money so you can keep giving people back money when you promise it. That's what Bernie did. And I'm not sure but I suspect what happened here was, he had a trading strategy that went bad fairly early on in the game, and he just kept trying to trade his way out of it, and it got worse and worse and worse.

L.G.: What about the enforcement agencies? How can you explain the Securities and Exchange Commission's complete falling down on the job?

C.W.: Well, I think you explain it by a complete failure of responsibility and incompetence. It's stunning to me. As people investigate this story, you're going to start reading all kinds of things about the fact there were a lot of professional investors who had reason to believe this was not a sound investment firm for a long time, that there was sort of a suspicion in the sophisticated investment community. You're starting to hear some of these people come forward who had actually done the due diligence who had raised exactly the question you're raising, so that information is all out there.

L.G.: And some of them had gone to the S.E.C. and said "Hey, take a look at this."

C.W.: Exactly, as far back as 1999.

L.G.: And an enforcement official at the S.E.C. was somehow related to Bernie by marriage.

C.W.: I don't know the family relationship, but I'm sure in part, Bernie got a pass because he was a member of the board of the N.A.S.D. [National Association of Securities Dealers], and he was a big figure on Wall Street and so on and so on. Of course, this is one of the things that happens in a protracted period of a growth and economic prosperity, and it's a reminder that the S.E.C. exists not to be chummy with people in the business, it exists to make sure people are doing what they're supposed to be doing. I don't think there's any way of sugarcoating this. This appears to be a complete breakdown of responsibility and competence at the S.E.C.

L.G.: Do you feel like by getting out of the business when you did, in the early part of the century, that you perhaps dodged a bullet?

C.W.: Well, I'm not sure. I obviously have 25 years' worth of friends who are involved in all kinds of organizations that are going through all kinds of pain, or have gone through pain and are out of business, and I'm not sure I have any sort of existential conclusions about all that. I would say that I think at its core, the investment banking business—capital raising and providing advice to companies and governments—is a worthy business. And the vast majority of people that did it have values and morals and integrity and so on. There is a clear sense in which this thing sort of spun out of control. It happened over a period of time, it didn't happen over the last couple months. If you go back and you trace the history of real estate lending in the United States and the creation of the subprime lending industry, it was aided and abetted by many of the same congressmen who are now raising demagoguery to a new level, and certainly aided and abetted by government institutions and banks. And everybody sort of had their hands in this pot. I think the period from the late '90s to today was a period where a sense of value and balance and some core values was lost in some ways. I had a great 25 years in the industry, I met many of the people I'm closest to as friends during that period of time, but part of the reason why I and I think other people have looked and continue to look for things to do beyond the securities industry is I think there is, for a lot of people, sort of a spiritually and morally empty prosperity that characterized Wall Street.

L.G.: Did you not believe in the tenet "Greed is good"?

C.W.: [Laughs] I'll give you two perspectives on that. "Greed" is obviously a pejorative word, but the more ennobling characterization of that is "initiative and aspiration to create prosperity for ones' self and ones' family," which is another way of characterizing greed, and it is what drives the fundamental free-enterprise system in an economic democracy. So the inherent human quality to aspire to be better off and to have one's family be better off is something I think is not only good but we rely on it in our form of government. The problem is that it needs to be bounded. Unfortunately the '90s and the first part of this century was a period in which we took down all the bumpers and the barriers and had this sort of slavish mantra that the market knows best. Well, the market doesn't know best. The market needs to be policed. The market does a spectacular job of allocating capital through a price-discovery mechanism, and it relies on the self interest and the aspirations—or the greed, if you will—of individuals to do that. But it needs limits and it needs boundaries, and all the people who were supposed to be maintaining the boundaries took the boundaries down. Then people did what people do when they don't have any boundaries.

L.G.: You once told a reporter, "There were no people more self-important than investment bankers, including me." What does that mean?

C.W.: I do recall saying it, and I think it's true. I'm not sure I would say today there are no people more self-important. I think there is occasionally the politician and the corporate executive that rises to that level. But this is the Michael Lewis observation that when you take relatively young people and you expose them to the perquisites that one normally associates with wealth and power, and you give them amounts of money which by any other social perspective are the result of either a lifelong pursuit of something or inherent wealth, then people become very self-important. It's the old story about the guy who wakes up on third base and assumes he hit a triple. There are an awful lot of people in the securities industry that got swept up with this rising tide, and somehow believed that they'd earned it or they'd done something to deserve it or that it meant they were somehow superior or more insightful. One of the things that is a particularly poignant element of the contraction of Wall Street is a lot of these people were swept up into a position where they didn't acquire any transferable skills. And it's a long step from that step down to the next step, where they actually have to go compete in the real marketplace to do something that someone will pay them a wage for. I'm not sure I'm ready to conclude that the industry is going to become humble.

L.G.: Perish the thought!

C.W.: A lot of the self-importance has been washed away with the multiple houses and the planes and those kinds of things. You know, Lloyd, you could've made a small fortune, perhaps a large fortune, if you had said 12 months ago that by the end of 2008 there would be no major American investment bank left in existence, which is the case. We have only bank holding companies.

L.G.: Tell a complete ignoramus how I would've acted upon that to make my large fortune?

C.W.: Well, first of all you could've bet on it economically through any number of ways, but you would've become a celebrity savant. That would've been like saying, "I guarantee there will be a cure for cancer in 2008." It was inconceivable that firms like Lehman Brothers, Bear Stearns, Goldman Sachs, Morgan Stanley would either go out of business or would become bank holding companies. Just inconceivable. It's still very hard for people to process, and I think it's hard for those organizations. You're seeing this in the aftermath of this October debacle. They're still sort of groping for modus operandi in this new, more-regulated, less-leveraged environment, which presents a completely different set of economic opportunities.

L.G.: So at this point you don't envision AmeriCares as setting up free clinics for former Lehman Brothers employees?

C.W.: No, but if a Lehman Brothers employee without work, and without health insurance or was part of the working poor community in Connecticut, presented himself to our Norwalk or our Bridgeport or Danbury clinic, we'd give them the same quality of healthcare which we give to anyone else—and it's a very high quality indeed.

L.G.: Excellent. Tell me—at one point after you left your last position in business, and you were 51 years old, you were quoted somewhere as saying you were going to be working on polishing your golf game.

C.W.: That didn't last very long, as you'd well understand if you'd seen my golf game.

L.G.: You obviously made a decision that you'd made your fortune and that you were going to do something else. You were involved in your church. Tell me a little bit about your own process in terms of getting involved with AmeriCares.

C.W.: The seeds of this go back quite a while. I grew up in Rochester, New York, which is up on Lake Ontario and is certainly a more Midwestern community than it is a Northeastern community. And my parents and the people in our church and the people that we associated with had the old-fashioned value of community orientation and so on—the idea of being involved and the idea of philanthropy at some level. We didn't use that highfalutin term, it was just giving money to people who needed it. It was something that was always present in our family, so that was a fairly natural thing. So when I got to New York after graduate school, in fairly short order I began looking around for something to be involved in, became involved in a number of nonprofit organizations, one of which I'd chaired for 10 years, which is Spence Chapin, a spectacular adoption and child-service organization. I remember at one point, probably in the early '80s—I'd been pretty successful at First Boston at that point—I was up at Spence Chapin and we were doing some strategic work on setting up an adoption think tank. I went back to work thinking, Gee it would be fun to do this kind of thing full-time, and that was the first time I had the conscious thought that maybe at some point in the future, that would be a fun thing to do. That notion stayed with me and became more concrete as time went by, and I've said to a couple of people, everyone has a life list, whether it's well-defined and explicit or not, things you want to do. They made a movie out of this, with Morgan Freeman and Jack Nicholson.

L.G.: The Bucket List.

C.W.: The thing about having the list is you have to start doing the things or you have to cross them off. So when I left Société Générale, where I was responsible for their investment banking activities in the Americas. I think that is when I made that observation about polishing my golf game, and I was sort of thinking about what to do next, and I was seduced by the internet like a lot of other people at that time and went to run this wonderful bill-payments company in New Jersey. Then after September 11th, when the world turned upside down, I stepped back and said well, you've got to make another conscious decision of what to do. If you're serious about this, you either ought to pursue it or you ought to cross it off your list. So I started to do the discernment and the networking, the investigation one needs to do to make that kind of continental shift in career and focus, and through a wonderfully serendipitous process about a year later, I found AmeriCares and was fortunate enough to be offered this job.

L.G.: It's obviously a charitable organization. It has an amazing ratio of overhead versus money to actual services. I think you're under 2 percent or something like that.

C.W.: Just under 2 percent goes to overhead and the rest goes straight into the field.

L.G.: But explain to people who think of charitable organizations a certain way, why the C.E.O. of a charitable organization should be making $300,000 or whatever your last paycheck was. I saw $275,000 quoted in one story.

C.W.: That's right. That's the salary I got when I came here, and that's been my salary for the entire time I've been here. I think that the answer to that is pretty straightforward actually. Charitable organizations, whether they're churches or universities or humanitarian-aid organizations, need quality leadership in order to be well run and to be successful and to be good stewards of the money they get. And there's a marketplace for people who do that, there's a standard of compensation in that marketplace, and if you want to have a high-quality team in any organization, whether it's profit or nonprofit, you need to pay people what the market is for people to do what they do best.

L.G.: You mentioned that you were not quite clear on what the policies of the incoming administration are going to be. What are you not clear on? What would you like to have defined that would help you out in deciding where to allocate your resources?

C.W.: I'm not sure it'll have as much impact on us directly, because, like I said, we don't take any money from the government.

L.G.: Right, but presumably if they're doing something, you don't need to be terribly redundant, if they're taking care of an area you might otherwise feel compelled to fund.

C.W.: That's one aspect of it. The bigger aspect is that most of the large humanitarian-aid organizations in this country, from the American Red Cross to CARE to Save The Children and so on, get somewhere between 30 to 70 percent of their money from the U.S. government. So they're very concerned about what the foreign assistance priorities, policies, and budget allocation in the new administration will be. We're concerned more from the perspective of what's the playing field going to look like, what are their priorities going to be, how much money are they going to be devoting to areas like global health, what is their universal health-insurance program really going to be, that will be relevant to our free clinic program here in the United States, and what's their approach to the economy going to be? We're really much more dependent on the prosperity of individuals and corporations than lots of organizations, and so we have a vested interest in having tax policy be favorable to philanthropy, for example. We have a vested interest in having tax policy not be confiscatory to people that have wealth in the sense that the biggest individual philanthropists are the people who have accumulated the most wealth. Those are all things we're concerned about and interested in. What I meant by the uncertainty of policy priorities is we've got a lot of campaign rhetoric, but right now in the reality, where you're confronted with a trillion-dollar federal budget deficit and the worst economic situation since the Great Depression and I think the most complex economic situation in the history of the republic, there are going to be all kinds of unintended, unforeseeable effects on all kinds of entities. And certainly the not-for-profit world is going to be affected dramatically, foreign assistance of not-for-profit is going to be affected too. There is this uncertainty, and it will gradually resolve itself. I think the president-elect is doing a good job in managing the transition. I think he's done a good job in honoring his commitment to focus on competence rather than traditional politics. But being president of the United States is a political job, so he can't be completely free from that. The biggest uncertainty we're going to deal with in the next two months is fundraising. This is the time of the year when American charities raise 50 to 70 percent of their money. So we're spending a lot of time here coming up with contingency plans for what we'll do if our fundraising is down anywhere from 5 to 25 percent relative to last year.

L.G.: It seems like the bulk of your fundraising is in-kind contributions of goods and services.

C.W.: That's correct. The value proposition, the leverage in our operations, comes from the fact that AmeriCares is the world's largest recipient of quality donated medicines and medical supplies from all the world's great pharmaceutical and medical-supply companies. We have very good relationships with you-name-a-company and the odds are that they're a donor to us. And so we raise cash to allow us to deliver those medicines, medical supplies, and other health-oriented relief supplies to needy communities around the world and increasingly even in the United States.

L.G.: I see that about 20 percent of your work, delivery of services, is domestically in the United States.

C.W.: That's right, and that's actually been a program which has been growing in the last couple years. And we think we'll grow significantly in 2009, obviously subject to the overall economic climate. But the combination of the magnitude of the uninsured population and the consequences of the economic downturn have put very much greater demand on safety-net suppliers of health services. So free clinics, federally qualified clinics, so-called safety-net clinics that provide either no-cost or very-low-cost primary care to individuals as an alternative to going out into the emergency room. And we are supplying medicines and medical supplies to over 100 of those clinics in more than 30 states last year, and we expect there to be more demand for that this year.

L.G.: So you think that the domestic part of your mission will increase relative to the other parts?

C.W.: You know, it's the sad reality of the context in which we work, which is quite different than the for-profit world. If you're in the for-profit world, you spend all your time trying to figure out a product, and how you go capture a demand for your product. Here in a world where there are somewhere between 2 to 3 billion people that don't have access to medicine, the demand for what we do is essentially infinite. So, yes, I think we will do more in the United States, and whether that will be more relative to what we do outside the United States depends on how big the overall pie is. We're resource-constrained, based on that amount of cash donations we get as well as the amount of donated medicine we get.

L.G.: Do you raise money outside the United States?

C.W.: We do, but not very much. We don't have a staff which is focused other than anecdotally on people outside the United States.

L.G.: And it might be more difficult this time to shake down Prince Alwaleed bin Talal.

C.W.: Yeah, there was a lot more discussion about international philanthropy and generosity at 150 bucks a barrel than there is at 40 bucks a barrel. But, as you probably have seen, we opened earlier this year our first integrated program office outside the United States in Mumbai, India. We did that for a couple reasons. One is, India has become a very important site of manufacturing of pharmaceuticals and medical supplies, and it's located in such a way that strategically it allows us to get assistance to a part of the world which is very tough for us to get to from here economically. We'll be spending a lot of time trying to figure out how to raise money from wealthy individuals, companies, and foundations in India, but 98 percent of the money we raise, or maybe a little bit more, comes from the United States.

L.G.: How much of your time is allocated to raising money versus checking up on programs and administering the programs of AmeriCares?

C.W.: Right now it's a little higher percentage. As a general matter I probably spend one third to a half of my time either raising money or speaking with both corporate donors and individual donors, cultivating them and so on, and the rest of my time I would divide between sort of general management kinds of things and policy and strategy work.

L.G.: Are you on the road a lot going to far-flung places where AmeriCares is doing its work?

C.W.: Yeah, I probably travel to international locations half a dozen times a year. Just a few weeks ago I was in Indonesia and India, and then last week I was in El Salvador. I've got the plan that's coming in the New Year to be in Sri Lanka, again in India, probably a couple trips to Africa.

L.G.: You have some stuff going on in Darfur, do you not?

C.W.: We do. We've done now 11 airlifts of planes full of medicines, to supply the essential medicine requirements of the refugee camps in the three regions of Darfur. Darfur is, sadly, one of those things that the Western world pays attention to when it can afford to. I first flew there on the first airlift that we did in 2004, when I and most of the rest of the people in developed countries really didn't have any idea where Darfur was, and I remember having learned quite a lot about it. And I was flying in a plane of about 15 tons of medicine, and I remember thinking this is a horrific thing, but at least now that the world has focused on it, in the post-Rwanda environment where everybody says "never again," at least now that people are focused on it this will get solved relatively quickly. That was more than 100 tons and 10 airlifts ago, four years ago.

L.G.: Do you have any idea that because this incoming president has such a unique relationship with Africa that the situation might change?

C.W.: Well I think this is apropos of the conversation we were having earlier about a little bit of uncertainty. This is a good example. I think he has the potential to redefine in an important way the nature of the foreign policy relationship between the United States and Africa in a way that would be important for the United States and for Africa. Where that will rank on his priority list, which list also needs to include oh, Iraq, Afghanistan, China, Pakistan, India, the Middle East, and on and on, remains to be seen. There's a limit to the amount of power that the United States could project, just a practical limit, both financial and logistical. And there's a limit to the financial power that the United States can project at this time, and there's also a span of control set of issues. So I would like to see the president set engagement with the African Union as a high priority and set the resolution of Darfur as a high priority, as a signal of what the new relationship could be. I'd like to see that on political grounds but most importantly on humanitarian grounds. Whether that's something that will be on the list or not remains to be seen. This is going to sound like an odd analogy, but Darfur shares the willing suspension of disbelief that the Bernie Madoff situation shares. There are so many people with dirty hands that allow this atrocity to continue, including the United States, but not limited to the United States, to people who support the Sudanese regime for their economic reasons, most importantly the Chinese, the Russians, and on and on. And so what you have here is a manifest atrocity of the most despicable kind, where the people that are in the position of doing something about it, including the Africans, by the way, for their own reasons, have just chosen to turn away. So it's one of those rare moments when the true nature of human nature is revealed. Some of those are wonderful, and some of them are not. And this is one that is not.

L.G.: By the way, do you plan to be in Washington around the time of the inauguration?

C.W.: I don't. I plan to be as far away from Washington as I could possibly be and still see it on cable television.

L.G.: With all the traveling that you do, I have to think all your shots are up to date, but have you ever gotten hugely ill?

C.W.: No, I've been very fortunate. I travel with traveler's pharmacy. I travel with the range of things designed to get at bugs and bites and things like that. But I haven't ever been hugely ill. I've been around some people that have been pretty sick. One of the things that I greatly admire among the people who do the kind of work we do and the places we're doing it, is their willingness to subject themselves to healthcare conditions, living conditions, and physical risks that are really quite intense. You can't imagine that conceptually until you've actually slept under a mosquito net on the floor of a cement slab in the desert.

L.G.: Which you have done?

C.W.: I have done. In fact, one of the moments of greatest irony and cognitive dissonance for me was that Darfur trip in 2004, which was in October, so the Red Sox were playing the Cardinals in the World Series. And I watched about half of a game of the World Series under a mosquito net in the desert in Darfur on a satellite downlink

L.G.: That shows how loyal a Red Sox fan you must be.

C.W.: It also tells you something about how interesting the world has become from a connection and a communications standpoint. You can imagine the dissonance that creates.

L.G.: Indeed. Let's say there are normal people out there who are moved by your mission. You take contributions of any size, right?

C.W.: In fact, one of the things that's the great strength of AmeriCares is over 27 years we have a very large and dedicated donor base. We have over 10,000 people who give us gifts on average of $50 to $60 to $70 a year.

L.G.: Do you think you've learned anything from the Obama fundraising operation?

C.W.: Well, it's pretty clear that all gift-supported organizations are spending a lot of time thinking about social networking and the power of the internet to create communities, so we're certainly trying to learn as much of that as we can. It's an area where my prediction is, like a lot of things having to do with the internet, the rhetoric will precede the reality for some considerable period of time. But there's no question that internet-based fundraising and community-building is going to be a very important part of all nonprofit organizations going forward.

L.G.: What's your Christmas wish or your holiday wish for the coming year?

C.W.: That's a terrific question. I guess my holiday wish would be for a smooth transition to what I think has the potential to be a new era in the American experiment, and for there to be a return to the kind of aspirationally based politics that characterized this country maybe up through the '60s, maybe up to the Nixon administration, and the turning away of the partisan attack element that we see manifest in so much of the society.

David Plouffe

Thu, 11 Dec 2008 05:00:00 GMT

If he were less shy and had a funny accent, David Plouffe would be every bit the household name that James Carville is—perhaps even going on Oprah and taking cameo roles in Hollywood movies. Plouffe is, after all, "the unsung hero" of the "best political campaign in the history of the United States of America"—which is how Barack Obama described him before a global television audience, in the mother of all shout-outs, on the night he was elected Leader of the Free World.

At 41, Plouffe (rhymes with "no fluff") will probably never top his historic achievement of managing the campaign that gave this nation its first African-American commander in chief. The juggernaut Plouffe led, which grew to a payroll of 5,000 before Election Day, raised record amounts of cash from millions of small donors, defeated the once-invincible Hillary Clinton machine, and crushed the flailing Republican nominee, John McCain. Obama's success was so overwhelming that it's hard to remember those early days when the freshman senator from Illinois was the longest of long-shots and the darkest of dark horses in a country still troubled by issues of race.

But, as the press-averse Plouffe told Portfolio.com in an exclusive interview, Clinton might well have won the nomination if she had just competed in the far-flung caucus states that handed Obama his insurmountable delegate lead in February and March. "We woke up every day wondering, is today the day they're going to show up in Colorado, Minnesota, and Washington State?" Plouffe said. "And every day they didn't, that enabled us really to build up our strength there."

Lloyd Grove: Just to begin, I'll do one small bit of full disclosure: I used to be married to your wife's sister, so that makes us ex-brothers-in-law once removed. But, hey, we're all ex-brothers-in-law in the family of man.

David Plouffe: In some way, if you do the charts deep enough, yes, that's right.

L.G.: The goal of this interview will just be to get you to teach us a little bit of Presidential Campaigning 101 and also to give us a couple of insights from your own experience in this last campaign. You've been involved in several presidential campaigns before. You did [Iowa Senator Tom] Harkin in '92, you've done [Missouri Representative Dick] Gephardt. Walk me through your previous presidential campaign experience.

D.P.: Those were the two, then I did a lot of the work for the D.N.C. [Democratic National Committee] during the general election of 2004. We, meaning David Axelrod and I, did a lot of the advertising—like McCain this time. The R.N.C. [Republican National Committee] was more of a major actor than the McCain campaign was, because they were in the federal system. We did a lot of that work in '04 for the D.N.C. Gephardt was '04. The other thing is I spent a lot of '97 and '98, when Gephardt was planning on running against Gore, as you might remember. I spent two years doing a lot of planning and work on that. It gave me a lot of understanding of Iowa and New Hampshire and how the process works, that early states were of paramount importance, that if it got into a long, drawn-out affair, it was going to be a delegate-by-delegate battle, and also that the way the media covered the race did not reflect how the race might be decided. So that took a lot of discipline not to play their game but to play our own.

L.G.: Okay, why don't you give me a sense of the scale of things? Basically a presidential campaign is a business. It's a public company of which you were the C.E.O., and it's only a temporary company, and the goal is to get 50 percent market share plus one. I guess in the primary phase it's less than 50 percent. But give me a sense of the scale. You had 1,000 on your payroll? How much money came in and went out?

D.P.: There are business analogies. One is, we're a startup, we had to go from zero to 60 in a matter of weeks. Our company, if we were successful, would only last two years at the most. You have an end line. You don't have quarter after quarter to succeed. You either win or lose on Election Day. It is a very accelerated environment. For us particularly, because we weren't planning to run for president, he got into this very unconventionally. It's like taking off while you're fixing the wings on a plane. You're up on the high wire, but by the end we raised over three quarters of a billion dollars, over $750 million dollars. We had over 5,000 employees, we had millions of active volunteers. So it was a big organization. The most important thing for me as a manager was the senior staff. If you don't have strong senior staff, you're going to struggle, and I was blessed to have a strong senior staff. And we were an organization about accountability. Down to the entry-level staffer, we measured their job performance based on metrics.

L.G.: And what were those metrics?

D.P.: It depended on the job. If you were a fundraiser it was how much money you raised. If you were a field organizer, it was did you recruit enough volunteers? If you were in the operations part of the campaign, were you processing things quickly enough? We were kind of a service organization in some respects to the states. We had a whole team in Chicago there to serve the states, who were out there in the battleground and war zones. And so we can't afford to have any delays in what they need. People who are cutting lists, data people—it all has to be both accurate and quick. I think we were a very agile organization, even as we got big we kind of maintained that insurgent feel and that's very important. I think we were much more nimble than Clinton or McCain.

L.G.: Clearly. Walk me through the different units of the campaign. There's the ground game, media, communication—just tell me how you thought of the organization.

D.P.: There are the states, which were always critical, and within the states, there's a state director, the ground game, and people doing press in the states. We viewed the campaign as essentially 16 different campaigns, because every state is different. We had communications people in Chicago, we had research people in Chicago, we had a big new media and technology department in Chicago. We had a fundraising department, we had a scheduling and advance department, which is critical because we obviously had Obama and Biden and their staffs out there every day. We had a vice presidential staff, we had an operational staff that administered the campaign. Those would be the main areas.

L.G.: How much money is allocated to the various units of the campaign? One always hears that paid advertising takes significantly more than 50 percent—putting commercials on the air, radio, and television. Can you break down the percentages?

D.P.: Well, we spent obviously a lot of money on TV, but as a ratio of our spending, it was much lower than historically is done, and that's because we spent a lot of money in the field and on the ground. And, in fact, when we did our baseline budget, the field was fully funded because we thought it was very, very important. If we were to raise excess funds, we bolstered the field a little bit, but it went in advertising. Our first priority was the ground operation because we thought that was essential to us winning. It's very much, I think, a unique approach. In a lot of campaigns, the media gets funded first, then if you have extra money that comes in, you bolster the field and things of that sort. And we kind of did it in reverse.

L.G.: Can you give me a rough breakdown of percentages?

D.P.: Well, no. I would say that it's lower.

L.G.: One always hears historically it's almost 70 percent that goes to media.

D.P.: Right, the playbook is 70 to 75 percent, and we did much less than that. Under 50 percent.

L.G.: What gave you the chutzpah to think you should break the model, and spend more than 50 percent on non-media?

D.P.: First of all, we knew that we had to get really good turnout, and that we thought a human being talking to a human being in a state is the most effective in communication. So we needed an organization that was able to facilitate that. Secondly, a presidential campaign is a very well-covered enterprise, people are talking about it all the time, they see it on the newscast, they're reading about it online. In many respects, advertising in a senate race or governor's or congressional race can have more impact because those races aren't front and center for people. I always believed that advertising was very, very important. I think we went right in and it was very helpful—makes it meaningful because people have 100 percent knowledge of the candidate and are following pretty closely. So I thought we could afford to trim a little bit. Now we ended up raising a lot of money, so our point levels were very big in September, October, but we could've won without that. Then the McCain campaign likes to say, "we were outspent, that's why we lost on TV"—and I think that's complete malarkey.

L.G.: You think it had more to do with the good luck you had with the economy tanking and the fact they didn't really have a ground game?

D.P.: Well, and they careened from message to message, strategy to strategy. We had one message, one strategy. We won all three debates. When was the last time one candidate won all the debates? Maybe Clinton in '92, although I think one of them was a tie. We had big moments in the campaign.

L.G.: So David, as far as you're concerned, you're still in Spin Alley, huh? Still telling me Obama won the debates.

D.P.: Yeah, he did, and that was incredibly meaningful to us! McCain, he suspends his campaign around the economic issues, we don't. There's no doubt our voters liked our stability and punished McCain for his erratic-ness.

L.G.: Just to go back a little bit, you didn't know Obama until you worked on the Senate race with Axelrod. At what point did you think this guy was presidential horse flesh?

D.P.: Well, my sense is we had this conversation about whether he was going to run or not, and I had a pretty high degree of confidence that he had the intellect and the character and temperament to be a very good president. The bigger question was, could he be a good presidential candidate, because that's the horse of a different color—the grueling nature of it. He hadn't spent any time in Iowa, New Hampshire, didn't have a fundraising base. He had young kids—he wouldn't see them very often. Those are the big questions. Could he transact this brutal obstacle course at the presidential campaign? These presidential campaigns are very grueling obstacles and I think they're pretty revealing. I just grew to have an immense amount of respect for how he dealt with it, so the question was, could he be a good presidential candidate and could we, in improbable circumstances, announce his presidential campaign against a dominant front-runner like Hillary Clinton?

L.G.: When were these discussions?

D.P.: It was after the 2006 election. And you know it was definitely seat of the pants, because he hadn't spent any time in 2005 or 2006 thinking about this, discussing this, doing the things people do who plan to run for president. It was a startup in every sense of the word.

L.G.: So there was really no follow-through from kindergarten, when he first announced for the office? [The Clinton campaign had mocked Obama for writing an essay when he was in kindergarten saying that he wanted to be president.]

D.P.: Exactly. A big hiatus there.

L.G.: There is another aspect to this. In business, you don't have your competitors—say you're Pepsi and they're Coke —saying that actually Pepsi has poison in it. And if you drink it, you're going to die. So you don't have that aspect in real business because I think the Federal Trade Commission would step in.

D.P.: That's right. Exactly. In real business, there's no doubt that there's competition and you're fighting for market share. It's a much more genteel affair, trying to go from A to B. But in a campaign you've got arrows flying at you every day from your opponent, from the press. That's your goal every day, you're trying to accomplish something every day—a message you're trying to drive, voters you're trying to contact, money you're trying to raise. This isn't like shooting free throws. That's one of the things: Can you stay upright every day? You want to accomplish what you need to accomplish, and that's a very important difference between what we do and what business does. And it makes it more complicated.

L.G.: You mentioned not getting distracted. I guess one obvious distraction was the Reverend Wright affair. Can you think of anything else that reached that level?

D.P.: No doubt we had challenges. I think, first of all, getting the campaign up and running was a huge challenge.

L.G.: Tell me how you did that. Give me the timeline.

D.P.: You know we started really in January of '07. Here's why. We had a lot of great staff who gravitated to us, who were inspired to work for him, weren't in it for their own reasons, and so we were very quickly able to attract a great staff. From the very beginning it was clear there was going to be a pretty strong grassroots appeal, although no one could've predicted it would grow as large as it did. We had some assets, but it was a challenge. Listen, it was brutal to try to get this up and running in a matter of weeks. We had to find office space, we had to get accounts up and running, we had to raise some initial seed money, we had to get staff hired in all the states. And, again, almost anybody who runs for president spends years planning for this, right? So you kind of turn the key and you have a plan, and we didn't have a plan. As challenging as it was, I think in retrospect it made us a better campaign, because we didn't have some stale playbook we were following. We were kind of making it up as we were going along, but I think in a very effective way, because the electorate changes and technology and techniques change so we weren't wedded to any of the old ways of doing things.

L.G.: Give me a sense of what the candidate's involvement in all this was. You're C.E.O., he's chairman of the board. Tell me how down in the weeds he got and how that whole interaction worked.

D.P.: I think in the beginning, circumstances dictated it. We didn't have a lot of time to dilly-dally in the beginning, we just had to move, make decisions, and move. I think that was helpful because then the organization, and he and I, developed a good way of working. I kind of got to know what decisions he would want to be involved in. He really spent a lot of time on policy decisions, what's his health-care plan going to look like, what's his energy plan going to look like? He spent a lot of time thinking about how he wanted to communicate things, then I got a sense of what decisions he'd want to be involved with, and what discussions. So I thought we had a very smooth way of operating, and part of it is because of that beginning period, we had to do a lot of things very quickly. I think a lot of it ended up working out well. He had confidence in the organization. Sometimes in an organization you can be really harmed by the inability to make decisions or to chew on things for too long, and we didn't have that luxury. The organizational mentality was, we're not going to dither, we're going to try and make smart decisions, and you have to know that not all of them are going to work out. But one thing that we didn't do in our campaign was revisit and that drives me crazy. If you run an organization, four weeks after we make a decision, "if we'd only done that"—you just don't have time for navel-gazing.

L.G.: Obviously Hillary was the front-runner, the prohibitive favorite to be the nominee when you got into the race. How did you view that campaign? Because obviously you've had relationships with and knew all the players in her campaign. For all I know you had worked with them in different races.

D.P.: Some of them. I would say we had a full appreciation for her strong standing in the race, and knew we were decided underdogs, and that informed most of what we did. When you end up in a competition like that, obviously it gets heated and you obviously want to win badly. You wake up every day trying to really do damage to them. We had a healthy amount of respect for her, and for their position in the race. They were as strong a front-runner as you'll find in American politics, and we didn't really dispute that. We thought we had a path to the nomination but it was a very narrow path. She had a lot of different ways to win and we only had one. We had to win Iowa, and then obviously we had to win this delegate battle, when it turned into a long race. We were huge underdogs. I think that sometimes gets lost years later—"Oh you raised all this money, you built this big organization." We were definitely a huge underdog in this campaign.

L.G.: Did you think at the time, if you can cast your mind back to the time you got into the race, knowing all the players in Hillary's campaign, did you think she had an Achilles' heel?

D.P.: Just that the country was looking for change and that Obama represented change more than she did, and it became clear as the campaign went on, that they probably didn't have as good a grasp about how this would unfold as we did. They ran much more of a national campaign, much more concerned about what the national press had to say. We were much more driven by what was happening in Iowa, New Hampshire, or Wisconsin—that was their Achilles' heel as far as their campaign. They were a very good campaign, they raised tons of money, they were very aggressive, they worked the press hard. She was a relentless and focused candidate. They had a lot of things going for them, and obviously if we had not won Iowa, we probably would've gone belly up—so Iowa was a high-stakes thing.

L.G.: I know that you use the pronoun "they" for Hillary's campaign, as though they were like a unified entity and not trying to kill each other behind the scenes all the time. I have to think that one advantage that you had over them is that you had a very collegial environment and they—which is I guess the standard operating procedure for presidential campaigns—were constantly at each other's throats.

D.P.: I wasn't in that campaign, but you hear the stories. We had three things that helped us run a very good campaign, and I think this wasn't the case for Clinton or McCain. One, we had a consistent message. What was our slogan the entire primary? "Change we can believe in." We adjusted slightly for the general—"Change we need." That didn't change. That was boring to the press, but that consistency, I think, wore well with voters. And we didn't have meetings every day about how to change our message. We had an electoral strategy, and the primary contest goal was to try to do well in the early states, and win delegates, in the general to play on the big map. We never adjusted that. And third is we didn't have that internal tension and in-fighting, so we could just focus on doing our damn jobs every day, and executing at a high level. And you're right. I've worked in a lot of campaigns and they've been great experiences, but this was by far the most collegial environment that I've worked in, and it was a real pleasure to go to work every day, and we just had a sense of mission. And that can't be overstated. There weren't a lot of closed doors where people were complaining and we were a unit. And once we made a decision, we had made a decision, and no one second-guessed it.

L.G.: Why do you think that was, David?

D.P.: I think partially the types of people that worked in this. I don't think many of us would've worked in another presidential campaign, it's not what we were looking to do. We were motivated by him. I think being in Chicago helped. I think Obama, and secondarily me, set a tone that we're not going to abide a bunch of internal fighting, we're not going to abide talking about our business to the outside world, and we're going to be strong in our opinions but we're going to respect decisions. And that was just the ethos of the organization and it made it much more effective than I think some of our opponents' campaigns for that reason.

L.G.: Did you have to drive that message home by making an example of anyone? Not to get into specific people, but did you have to fire anybody?

D.P.: Sure, well, I mean we fired people obviously, but from the very beginning we did spend some time saying, this is the way we're going to operate. We're just not going to have a bunch of the typical campaign B.S. We're not going to talk to the press about things we shouldn't talk about. We're going to respect each other and we're going to have a sense of mission. And, again, I think being an underdog helped in that regard. We had to be feisty and almost perfect to win the primary. And we weren't perfect, but we didn't have a lot of time to navel-gaze and worry about what job we were going to have in the presidential administration, because it was such a far-fetched enterprise in the beginning.

L.G.: Did you actually have a meeting where you and Obama sort of laid out the ethos of the campaign, where you said all those things explicitly?

D.P.: It wasn't a meeting. It was just a consistent and present part about how we talked about the campaign in the beginning. And so when people came on in the general election, a lot of new people came in but there was an existing ethos. So people had to kind of adapt to it, and that was a challenge obviously, because you were disrupting to some extent the great chemistry we had—but it took hold.

L.G.: How did you discipline salaries and compensation? Because traditionally, if you look at, say, Mark Penn [Hillary Clinton's chief strategist], I don't know how much Mark was pocketing but you see that they had outstanding bills approaching $10 million to him.

D.P.: People on the campaign could not make more than a certain amount—$12,000 a month. There were salary bands, so there wasn't a lot of eventfulness about what people got paid. If you were a deputy you got paid X, if you were an assistant, you got paid Y. We were very aggressive with our consultants in terms of their piece. From a fiscal management standpoint, Obama was very clear that he did not want to end up with a debt in the primary or the general, so we just planned accordingly. We didn't spend beyond our means.

L.G.: So the highest salary on the campaign was $12,000 a month?

D.P.: Pre-tax, yeah. In other campaigns, they can make a lot more than that, and people working in Senate races and governor's races made a lot more than that.

L.G.: You've made more than that.

D.P.: No doubt, it was a financial sacrifice for many on the campaign, but I think it helped. There wasn't any drama around compensation.

L.G.: What about percentages of ad buys?

D.P.: We had a cap, an aggressive arrangement—

L.G.: What did you cap it at?

D.P.: Well below industry standards.

L.G.: Because arguably, somebody could still get a very handsome fee. Say for the sake of argument, you spent $350 million on advertising. Even a niggling 1 percent of that is $3.5 million.

D.P.: That's why you have caps, so that people can't make more than a certain amount. So that if your spending does increase, their profits don't increase.

L.G.: What was the cap on that?

D.P.: I can't remember—it differed by firm based on what they were doing. But we made sure to protect ourselves. That ended up being, I think, wise, because we obviously raised a lot of money but the firms did not make more. My view of this is that working on a presidential campaign is obviously arduous but it's a unique opportunity. My view is you shouldn't have to pay market rate for people's services. And that's the general approach, and it seems to have worked out well.

L.G.: As reporters, we love covering campaigns, and especially presidential campaigns, because they're just a great source of gossip and behind-the-scenes drama. How did you stop that? Everybody was amazed at how little that was occurring from the Obama campaign.

D.P.: I think, first of all, we attracted the kind of people that weren't in it for themselves, they were in it for the cause. And that can't be overstated enough. Then I think, you instilled from the get-go, we don't tolerate, we don't want our business out there publicly. But I think without that core group of people, who had the right reasons for being there, who were very loyal, we couldn't have done it. We had a really great esprit de corps, and I think the culture of the organization from the get-go was, a leak could not be tolerated, it wasn't who we are. Any time there was a story we didn't like, we let it be known, so we did take some corrective action. And I think eventually that really became known throughout the organization—that we don't leak. Even as we grew, when we added staff it was a challenge, but there was enough of us being around through the primary that our culture is what people became indoctrinated in. It was a big deal. This isn't through some perverse desire for secrecy. I do think the press plays a very important role, so we were free with the information we thought needed to be. But the way we made decisions and processed stuff, if it didn't really serve voters, if it didn't really serve us, we tried to be careful about that.

L.G.: You personally had a limited degree of contact with reporters.

D.P.: I did talk to reporters, but only when we thought it served a purpose. I did plenty of it, but I didn't spend my day on the phone with reporters, unless our press folks or I thought it served a purpose.

L.G.: At one point during the primaries, you sent out a memo which had a great impact, and what you said was, that it was virtually impossible for Hillary to catch up.

D.P.: Yeah, we did that in mid-February, and I did a conference call with reporters. That was out of character for the campaign, and for me, because we were fairly provocative. We thought the race was not being covered in an accurate fashion. It was being covered as a dead heat, and the reality was, we had turned a corner on the campaign, where it was extraordinarily unlikely that we would not win. So we thought it was important to send that message to the press, and to the superdelegates, at that point it was more and more about superdelegates. And we needed it to take hold—in fact, this was not a tied race, we had gained a foothold that was going to be very hard to shake loose.

L.G.: You'd obviously had the insight early on that caucuses were going to be extraordinarily important, and I just wondered how surprised you were that the Clinton campaign did not seem to appreciate that?

D.P.: Well, we were surprised because at some point it became likely that it was going to be a battle that went on for some time, and delegates that are gained through a caucus are no different than through a primary—so every contest mattered. What was interesting was, if you look at the contest in February and March, the caucuses of Minnesota, Colorado, Nebraska, Washington State, and almost all those states, our initial research, whether that be polling or voter I.D. work, showed us losing. Because it was the people who had gone before, and Hillary Clinton was the established candidate, so we had to expand the electorate, which was no easy task. It was made easier because they ceded the field to us for a long period of time. I think if they had contested those caucus states, we might've won those caucus states but we wouldn't have won them 55-35. As we all know now, the only way to rack up delegates is to win by a landslide. A close outcome yields an equal delegate count. So, it was those landslides, 60-40, 65-35, that gave us that delegate lead. We might've still won those caucuses, but I guarantee if they had contested them vigorously, our margins would've been shrunk. And that's the tale of the campaign. Otherwise we didn't rack up the huge landslide. We did in some of the primary states for sure, Virginia was a big win, Wisconsin was a big win, but those caucuses provided us a huge delegate lead.

L.G.: Did the loss in New Hampshire to Hillary have the effect of energizing the campaign?

D.P.: Well it did. It was a blow obviously. I think it was a real test of our campaign and our candidate. I think at the end of the day, voters want to see their next president struggle a little bit through this process, and if we would've won New Hampshire, we would've been like a comet streaking across the sky. I think they wanted to see Obama have to fight for it, struggle for it, and I think in many ways, we were better off for having lost New Hampshire. It's harder to see it in that moment—but it gave him a little more texture, and voters could say, okay, how do you respond to adversity, a tough situation? I think at that moment, the night of January 8, most political observers in the press thought Hillary Clinton was going to be the nominee, and that we were kind of a one-trick pony. We won Iowa, that was a nice political sideshow, and now order had been restored. But, yeah, I'm really proud how we fought back from that and were able to win the nomination.

L.G.: Perhaps the media, which is so focused on what's in front of their face—I say that with all due disrespect to myself—didn't realize what you were doing on the ground in these other states, coming up.

D.P.: I think that's right. All the focus about February 5—and February 5 for us was always a matter of survival—was that it was a day that was built for Hillary Clinton and we did better on February 5 than we could've ever imagined, I mean, we won more states and more delegates, but there was very little attention paid to what comes after February 5, and we won 11 in a row and we won almost all of them by landslide margins. That's why we built up a delegate lead that was never going to be given up.

L.G.: They obviously had Harold Ickes, who was supposed to be this huge expert on the rules and on how primaries proceed in the Democratic Party. Were you surprised they kind of dropped the ball on that?

D.P.: We were surprised. I'd read various accounts that Harold tried to bring to everybody's attention that this was going to become a delegate battle. I think they were much more tactical. The press narrative of the day was important to them. We were surprised.

L.G.: Another question. Winning presidential campaigns, as all of us know, are so often vehicles for people to become stars. Obviously the '92 campaign produced a number of stars. You took the position that you didn't want to have anything to do with that. Why was that, David?

D.P.: Well, I think it was candidate first and it was mission first. I also learned a long time ago that we're all replaceable, the only person that's not replaceable in the campaign is the candidate. I'm proud of the job I did, I'm very proud of the job the entire campaign did. But this was all about Barack Obama. Even though I'm probably going to write a book, I'm doing that because I think there's going to be a good story to tell. It's not going to be in any way an adulatory exercise about my role. The fact was, this was such a grassroots campaign, our partners in this were these millions of Americans who participated in the campaign, who were never seen before. We had all these supporters out there, volunteers, millions of people, and they're all part of the campaign, and I think that keeps us grounded, because they were a really powerful, important part of our campaign.

L.G.: So you're doing a book? Which is not a surprise—have you signed a deal to do it?

D.P.: I have not.

L.G.: I can well imagine you've been inundated with offers and pitches. Are you, too, using the sainted Bob Barnett?

D.P.: I am, yes.

L.G.: Why is it that this man handles every book deal out of Washington? It's amazing to me.

D.P.: Well, he's built a nice niche business, it's been good. This is not a familiar role to me. I'm going to be very careful about the book I write. It's one, going to be nothing but great, adulatory about the president. I'm not there to tell secret tales. We'll see if there's an interest in that. I'm just not going to do that.

L.G.: Positive books about winning strategies seem to do well. Now, just to understand how you dealt with some of these tough moments—for instance the sound bite in the Huffington Post about the candidate talking about bitter religious gun owners in San Francisco, that seemed to have a long half-life. And then there were the sermons of Reverend Wright that got enormous play. Were those crisis moments in the campaign you had to deal with? Can you walk me through some of that?

D.P.: Reverend Wright was the most severe test we faced. The "bitter" comments were challenging, so what we tried to do is just handle them calmly. This was the place where Obama proved himself, I think, to be a unique leader. He was always the calmest guy in all of those—I think the way he decided to give that speech on race in Philadelphia was exactly what you'd want in a president. "I don't know if people are going to accept this or not, I'm going to say what I think, and they'll either accept it or not." That certainly wasn't in the political playbook, to give a speech about race, and deal with that. We were tested, there's no doubt about that, and we were tested in the primary. We went through as rigorous a primary as we've ever seen in our country's history, I think, and there's no doubt that made us a stronger general election candidate. A lot of our dirty laundry was aired, and we had practice in testing a campaign. Clinton, she was formidable, the campaign was formidable, it was very aggressive. We were the front-runner for a while, which meant the press took a bite out of us. We had really been tested, and we went into the general election in very much fighting shape. We were ready for those five months because we had been through 54 primaries and caucuses, and run the gauntlet. McCain hadn't done that. For all of his years in public life, he never went through anything like what we did in that primary.

L.G.: By the way, were you at all concerned at the time of the Reverend Wright business that it was really going to be damaging and might deny you the nomination?

D.P.: We didn't think it would deny us the nomination, but we knew it would be a hit to the main engine. It bothered people, it was a factor in the general election. But people had digested it, and those people got by it, others couldn't. But it was a big issue and it was a real test. I think the way he dealt with it, most voters said, Okay, he dealt with that in a way that I can respect.

L.G.: But it wasn't a near-death experience of the kind that, if you cast back to 1992, the whole draft-Gennifer Flowers business was for the Clinton campaign. It wasn't at that order of magnitude.

D.P.: No, but I think it was probably a notch below that. It was a serious, serious episode and tested us in every way possible.

L.G.: Walk me through the risk/benefit analysis you went through in deciding not to take public financing.

D.P.: Well, he's a campaign reformer by nature and by record so it was not an easy decision. First of all, we thought we'd achieved one of the ideals of campaign finance reform, which is millions of Americans contributing to the campaign. We didn't take P.A.C. money, we didn't take lobbyist money, we had millions of contributors, so we felt that we were doing right by the reformer agenda. Secondly, we thought the Republicans would have tons of outside money. It was clear that they didn't have any interest in policing that. Then, third, we were trying to control as much of our campaign as we could. The truth is, what happened was the McCain campaign raised a ton of money. This notion that somehow they were destitute is ridiculous. The R.N.C. raised $250 million in September and October, but it was raised in huge checks, a lot of $30,000 checks, P.A.C.'s, and lobbyists. We thought our funding stream was pure, and I think at the end of the day it was an important decision not because of the dollar amount, so much as we had control over the campaign, the field operation, our ads. We didn't have to outsource it to the D.N.C. Having control of all the levers of the campaign was important.

L.G.: How important was the D.N.C. in your operation?

D.P.: Well, the party apparatus was less important than it was four years ago, than it was to the McCain campaign, because we were the central actor. But they had a budget and a program that was donated in concert with us, and our relationship with them was great. They did everything we wanted them to do. There was never any source of dissent. They didn't make anything hard. Howard Dean was great, he basically said, "This is your committee now, you just tell us what you want to do." It was a terrific working relationship.

L.G.: By the way, your name has been put up for everything from Senator from Delaware to D.N.C. chair. I know you sort of pooh-poohed the senator thing. Is the D.N.C. thing at all intriguing to you?

D.P.: It's not. I think there are plenty of great people who will do that, and I'll help as a volunteer. I apologize but I have to jump on a call that started six minutes ago.

L.G.: One last thing. This list of donors you have, what happens to that? I assume it's a pretty damn valuable list, isn't it?

D.P.: We haven't made a firm decision on that. The most important thing is that a lot of them want to be involved in their government, in helping, so we'll figure out a way to make sure if they want to help, articulate on behalf of issues, they're able to do that. I think they want to remain involved in the country's civic life. It's a precious relationship we have with these people, so we want to make sure we continue it, that they feel good about it and they feel they're being productive. That's the most important thing. If they want to help, and we've asked them, we've surveyed them, got a huge amount of data back about how they'd like to help and the critique of our campaign, what do they like about the interaction, what could be improved, it's a source of really rich data.

L.G.: I see. By the way, for someone who doesn't have a job you sure have a lot of conference calls, man.

D.P.: Yeah, well, you know, it's the way things go.

L.G.: Tell Barack to leave you alone!

D.P.: I know. I'm trying to pull away.

Ray Kelly

Fri, 28 Nov 2008 05:00:00 GMT

New York Police Commissioner Ray Kelly—top cop under two different mayors, David Dinkins and (after an eight-year interregnum) Michael Bloomberg—knows more about managing big enterprises than many a corporate C.E.O.

At 67, Kelly is a bona fide celebrity—the familiar face of New York's Finest. He is also a smart politician who was all set to run for mayor until his boss, media billionaire Bloomberg, decided to have the city's term-limits law changed so he could stand for a third term. (Kelly is savvy enough to pretend he wasn't disappointed.)

He is a career public servant who absorbed his fundamental management principles as an officer in the U.S. Marine Corps. Eight years ago, after Clinton administration jobs heading up enforcement at the Treasury Department and overseeing the Customs Service, he spent all of 10 less-than-satisfying months in the private sector—as the executive in charge of global security at Bear Stearns, the Wall Street firm that cratered earlier this year.

Kelly discovered that he preferred the high-stakes challenge of working for the taxpayers, even though the consequences can sometimes be dire. "In the rest of the world, in the private sector, you make a mistake, it costs money," he told Portfolio.com in an exclusive interview. "In this business, you make a mistake, it can cost lives."

Lloyd Grove: You're basically the C.E.O. of a Fortune 500 company here.

Ray Kelly: With 52,000 employees.

L.G.: So a rather large Fortune 500 company.

R.K.: Yes, it is.

L.G.: First of all, how disappointed are you that you don't have the option now of running for mayor?

R.K.: [Laughs] I am very pleased that Mike Bloomberg has decided to run again. I think it's great for the city.

L.G.: If he asked you, would you stay on?

R.K.: Well, we haven't had that conversation, but I'm very fond of the city. I love my job.

L.G.: You spent exactly one year in the private sector, working for Bear Stearns.

R.K.: Less than one year—about 10 months.

L.G.: Did it just bore your ass off?

R.K.: It's different, I'll put it that way.

L.G.: What are the differences working in corporate America for an investment bank like that, versus working in public service, where you've spent all your life?

R.K.: Well, I've met a lot of great people in the private sector—well motivated, very smart. In the public sector, you believe that you're doing big things, great things, things that really impact on a lot of people, and in the private sector, obviously, the scope is much narrower, and you're not involved, at least directly, in contributing to the public good. So that's a significant difference. I think here, although it might sound corny, you really do have an opportunity to make a difference that impacts beneficially on many lives.

L.G.: You were running global security for Bear Stearns. What did that job consist of?

R.K.: Well, it consisted of a lot of things—basically the focus on fraud and seeing to it that certain rules and regulations were adhered to.

L.G.: At some point did you realize this just wasn't for you?

R.K.: It wasn't so much that, I think it was the horrific events of September 11th that made me realize that I wanted to be back in the game, I had something to contribute, and I felt more at home, given the events of September 11th, back in the public sector, as opposed to the private sector.

L.G.: So, Mike Bloomberg asked you to come back.

R.K.: Yes, he did.

L.G.: Before that, you were actually quoted as supporting Bernie Kerik, hoping that he would stay on.

R.K.: Um, it was an issue as to continuity, I think, after September 11th. That was the context in which I had made those statements.

L.G.: Right, continuity was apparently very important. Mayor Giuliani thought it was very important that he stay on as well.

R.K.: Sure.

L.G.: Tell me if you picked up any management lessons from working at Bear Stearns. Obviously, you know a lot of corporate C.E.O.'s. Did you get to know Jimmy Cayne pretty well?

R.K.: I got to know Jimmy Cayne, but I can't tell you I got to know him well. It's a big organization, had 8,000 people when I was there. I would say I was there too short a period of time, I think I picked up a lot of management training from my time in the Marine Corps, which really was 30 years active in reserves. In my time in law enforcement, I was the C.E.O. of U.S. Customs, I was the undersecretary of the Treasury, and I had lots of federal agencies reporting to me—I even was the chairman of the New York State Athletic Commission for a period of time. So I've had a fair amount of executive experience, and I had it in this job, coming up in the job, so I can't say that 10 months in the private sector taught me a lot other than the fact that there were well-motivated, smart, good people in Bear Stearns that I still keep in contact with.

L.G.: And you can't tell me today that, had you stayed there, you could've prevented them from going large in subprime derivatives?

R.K.: I'm not certain I understand to this day what that all means. Credit default swaps are not my strong suit.

L.G.: There's been a lot of talk lately that with Wall Street obviously in a terrible bear market, the economy going into the dumper, that has an impact on crime, particularly here in New York. During depressions and recessions, crime rates tend to rise. What's your sense?

R.K.: My primary concern is that this economic environment we find ourselves in will impact on the resources that we have available to police in this city. The mayor has some pretty difficult choices to make. We have to balance our budget every year. We're not like the federal government where you print money. The budget has to be balanced.

L.G.: And your budget is, what, close to $4 billion?

R.K.: Yes, and 94 percent of our budget is personal services, salaries, so to have any meaningful reductions in the police department, it has to affect our head count in some way, shape, or form. I don't know what they will be. What decisions we'll make haven't been made yet, but that's obviously my concern. So I see that as a bigger issue. I don't see former Lehman Brothers employees going out and sticking up 7-Elevens. I don't think that's the outcome of what we'll have here. The larger picture is the reduction we've done. I think we have transformed this department since September 11th, and we have made it not only a conventional crime-fighting organization, but a counterterrorism entity that I think, in terms of a municipality, is second to none. We have no guarantees, but we have done more to protect this city than any other city has, to the best of my knowledge, in the world.

L.G.: Right. But you also have the normal workaday police work.

R.K.: Absolutely, and we've been able to reduce crime 30 percent since this administration came in, in 2002, with 5,000 fewer officers than we had in 2001. We have about 36,000, but we had 41,000. In the middle of this administration, we had a horrific arbitrary decision of lowering the starting salary to $25,000 from what it was—$40,000—so we went back to the starting salary of 1986. That's another challenge. We've lost 5,000 officers, we've got additional obligations of protecting the city form a terrorist attack, and, oh, by the way, we lowered your starting salary almost 40 percent. Make it work. So we have be able to make it work. Crime is down 30 percent, as I say. Last year we had the lowest number of homicides that we've ever had since we've began to record them accurately in 1962.

L.G.: What was that?

R.K.: 496. Now, if you look at the homicide rate in the city—murder rate—not all homicides are murders, but if you look at the murder rate compared to other cities, New York is by far the safest big city in America. It's the safest out of the top 10, the safest out of the top 25. Now, if you look at New Orleans, New Orleans has a murder rate of 95 per 100,000 population, Baltimore has a murder rate of 45 per 100,000, Philadelphia, I believe is 27 per 100,000, Los Angeles is 10 per 100,000. And we're 6 per 100,000. This is, in my business, a remarkable number.

L.G.: Well, the New York City police department obviously has a reputation for management and crime reduction theory that works. And I gather you've lost a lot of your people to run other police departments. Why is it that other police departments, such as Baton Rouge, want to get New York-style management of their police?

R.K.: I can't criticize other departments, I don't know what's going on in other places. I will tell you this: In most cities, police officers are the most expensive civil service, so cities will come here and are looking for the magic formula, looking for a bit of a gimmick—CompStat or whatever. Now, all these things work, but there's no substitute for boots on the ground. You need the bodies to do it, and we've been able to do it with 5,000 fewer officers. But there's difficulty in other cities paying for the police services, and most cities have a formula that gives you roughly enough police officers to respond to 911 calls and some investigative ability. You need more than that, in my judgment, to aggressively attack crime problems. Not every city has crime problems, but in the cities that do, I think you have to, if at all possible, try to find the resources to provide an adequate number of police officers on the street. Most cities have a formula, about 2.1, 2.2 police officers per 1,000 population. We have about 4. Washington, D.C., has about 6—so it's not a panacea.

L.G.: You use CompStat [a hardheaded and occasionally severe management tool that relies on comparative statistics in individual precincts to evaluate performance, often harshly], right? And under Mayor [David] Dinkins, you developed community policing, so-called, and CompStat, I guess, is credited to Bill Bratton [Kelly's sometime rival who was Mayor Rudy Giuliani's police commissioner].

R.K.: CompStat is a system that we have in place here, on a borough basis, where commanders would come in and the borough commander would question what's going on in their precinct. What they did is simply take the system and put it on a citywide basis. We're doing something else here. We have a real-time crime center—did anyone talk to you about this? It really doesn't exist anywhere else in the country. What we have done is create a data warehouse here. When this administration came in here in 2002, we were still one of the world's biggest users of Wite-Out and carbon paper.

L.G.: And now you're so high-tech that when you read books, you do it on a Kindle?

R.K.: Yep, it's amazing. You can download it, you buy it for under $10, and it downloads in 30 seconds, I get the New York Times on it every day, automatically it shows up, and you can carry 50 books in it.

L.G.: So you're state of the art—no carbon paper and Wite-Out for you, man.

R.K.: We did lead the league, though—55 million drums of Wite-Out. And we have changed it significantly, brought in 12,000 computers, brought in the C.I.O. [chief information officer] from outside, and I got a recommendation from Lou Gerstner.

L.G.: The former I.B.M. chief executive.

R.K.: Right, and Jim Onalfo is our C.I.O. He was the C.I.O. of Kraft Foods and Stanley Works [the tool manufacturer]. But we had put in place this idea to create this data warehouse, we opened this in 2005, so we are pushing out real-time information when a crime happens, okay? CompStat is a retrospective look at what you did, for commanders to handle your crime problems. It's an auditing process.

L.G.: And it's a rather rough one.

R.K.: Well, it's direct, but it's lost a lot of that reputation.

L.G.: It's no longer like an EST session—people locked in a room and screamed at?

R.K.: No, no. So this is the other side of the coin. This is after the crime happens to push information to investigators in the field. I was just out at a shooting scene. We had six people shot, and we had one of them killed.

L.G.: Today?

R.K.: Just today, in Brooklyn, in the 88th precinct. An off-duty policewoman was shot in the foot. She's in there getting a haircut, but two males chase this individual, shot other people in the process, but shoot him in the head and kill him. So, when a crime like this happens, we dispatch vans from the real-time crime center. A van was out there, they are gathering information, and pushing information out to the investigators who were on the scene. It's kind of a big deal, lots of cops there. One of the classic examples I give is, we always had a tattoo file. Like, I run somebody with a tattoo and it says "Ray" on it, you record that. But we weren't able to easily access it. With the real-time crime center, we access it. Shortly after this center opened, a Sbarro's was robbed on Fifth Avenue. Somebody comes in, he had "sugar" tattooed on his neck, so we go through our real-time crime center, access the tattoo file. Most people arrested with the "sugar" tattoo are women, but we had this guy, picked him out of photo array, showed it to people, and arrested him right away. It's a simple example. We have billions of pieces of information that's available—both proprietary information that we have in-house and external databases that we push out to the field. The notion is that we're dealing with recidivists here, so if we get people who commit crimes off the street more quickly, we're going to reduce crime. It's working.

L.G.: What have you done in terms of increasing the number of cameras in the city?

R.K.: We have put in our own program of 550 cameras. We did that in all five boroughs. The program is finished. We put them in high-crime areas. We had a federal grant to enable us to do that. I would love to put another layer of those cameras in place. Now there's the Lower Manhattan Security Initiative, you familiar with this at all? Okay. Lower Manhattan is still the most sensitive area, from Canal Street south, 1.7 square miles. So, we are putting in place a Lower Manhattan Security Initiative that will involve 3,000 cameras—1,000 public-sector cameras, 2,000 private-sector cameras, about 130 license-plate readers—some mobile, most fixed. Also actual physical barriers that can wall off the area in extreme situations, and a coordination center, at 55 Broadway, on the 28th floor. We will bring in public- and private-sector stakeholders, and, again, it's another big-screen operation that will provide an enhanced security with about 600 additional police officers as it's planned now, and encompasses the World Trade Center site, and it has the Goldman Sachs Tower, the World Financial Center, New York Stock Exchange, Bank of New York, Mercantile Exchange, and, of course, everything that's going to be built—the Freedom Tower and other buildings at the World Trade Center site. That is going to be done in conjunction with Securing the Cities, which is a federally financed program. We're going to use state of the art, and we're already distributing state-of-the-art radiation detectors from 50 miles out. It'll be merged with this program. It's the first city in the country to have this, and on the screen we'll be able to see. I've signed a memorandum of understand with at least 22 other jurisdictions, so that we're all in this together. The notion is that if we get a reading on our detectors—

L.G.: Like a dirty bomb?

R.K.: Exactly. Radiation is coming in and it's out in New Jersey, it goes up on the screen, we're all tied in together. So with these radiation detectors, we will have cameras, we will have license-plate readers at all 19 of the entry points into Manhattan. So it'll be a very densely covered area.

L.G.: What do you say to civil libertarians? I guess that's different. If you were just a corporate C.E.O., you'd be doing this and not everybody would be throwing brickbats at you.

R.K.: Well, I don't think everybody's is throwing brickbats.

L.G.: Not everybody, but there are people who are concerned about privacy.

R.K.: You'd be hard-pressed to find them, other than the civil liberties union, the A.C.L.U. That's something they bring up—nobody else brings it up. You go into a department store, your picture is taken 20 times. That's the world we live in, I think post-9/11, people accept that. We are only using cameras in public areas. Nothing private about it. There's no expectation of privacy when you walk down the street. This is the area that we are taking pictures of. We have no intention of archiving this material, for more than, say, 30 days.

L.G.: In other words, you won't do it?

R.K.: We won't do it. There's no purpose in doing it. We want to allay people's concerns about it. It's for real-time security. It will also have predictive software built in, again state of the art. What do I mean by predictive software? Let me give you a simple example. If a truck goes around the block three times, we'll say, that will set off a certain indicator, or there's a package on a certain location, unattended for X period of time, that will also set off an indicator. I believe the Lower Manhattan area will be the most secure, but also open, business district anywhere. It'll be far beyond what's happened in London, and the London authorities certainly agree. They've been helpful with us, but they know that we're moving beyond what they've done. We know that area has to be secure, but we know it has to be open to be commercially viable. So it's a balance, and we certainly attempt to strike that balance.

L.G.: You've also heard from people who were unhappy with the way the New York cops handled the 2004 Republican convention in terms of public protest. You're sometimes criticized as allegedly having less admiration for the right of public assembly than others.

R.K.: [Laughs] That's not the case. I think the Republican National Convention was one of this department's finest hours. We had 800,000 people who came here for a demonstration, and nobody was hurt except one cop who was beaten and kicked. Look what's happened at other conventions, much smaller conventions. Look what happened in Denver, Minneapolis, St. Paul—macing people. None of that happened here. They came here—"they" being certain elements—to shut down the city. You have to remember that this was an incumbent administration having its convention here, all the principals coming here. This wasn't an outgoing administration, this was conceivably an administration that was going to be reelected. So they came here with the intention—and stated openly—of shutting the city down. That didn't happen. What did happen is the criminal justice system was overloaded, and it's understandable that when you arrest that number of people, you're not going to be able to handle them in the way you handle a normal flow of arrests on another day. But I thought the cops did a terrific job. All you have to do is look at the statements of CNN and the New York Times who have praised us liberally for the work that we did during the convention.

L.G.: So basically the New York Times and CNN—those are your metrics?

R.K.: Absolutely, and many others say exactly the same thing. This is New York, this is the litigation capital of the world. We understand that, we accept that as the working environment we have to operate in.

L.G.: I want to get into some of your core management principles, but unlike a business, you also have a lot of crisis events to contend with, just internal situations which are public hot buttons. For instance, you had to deal with this horrible, tragic situation of the Taser incident, where the guy fell and died and then the lieutenant who was reprimanded committed suicide—which is just a horrific thing for you personally to have to deal with. Walk me through what that was like.

R.K.: Well, this was a terrible tragedy for all concerned. I know that we handle about 88,000 calls a year with emotionally disturbed persons, and the overwhelming majority are handled without any problem at all. But each one is different than the other one. We take our emergency service officers and we train them, and they'll have six months of additional training. They're hand-selected, and they are trained to deal with these situations. We're human beings, sometimes we make mistakes, but unfortunately in this business, when you make mistakes, it can cost lives. In the rest of the world, in the private sector, you make a mistake, it costs money. In this business, you make a mistake, it can cost lives. So the ante is much higher in policing when you make a mistake. It's unfortunate that the Taser was used in that situation. Of course, it resulted in a loss of life, but the overwhelming majority of situations that we handle are done well. And we have departments coming from all over the world to see how we handle the emotionally disturbed.

L.G.: Right, but have you ever dealt with a situation where an official executive action on your part and the part of your managers was connected with a suicide of a police lieutenant? That's tough stuff to have to deal with—all the press with the lieutenant's family saying that you, Ray Kelly, are not welcome at the funeral.

R.K.: No, I did go. I think it was unfortunate. The father told me that he didn't think it out, he apologized. And this is not an easy job.

L.G.: You've got to be internally tough. I mean, that is emotionally wrenching.

R.K.: It's a very demanding job.

L.G.: You once described the New York City Police Department as being as mysterious to outsiders as the Vatican. What did you mean by that?

R.K.: [Laughs] It's as mysterious to outsiders as the Vatican. It's a complex place, and it certainly helps to grow up in the organization. I started as a police cadet in 1962, when there was an attempt to get college graduates into the police. So it was the first class of its kind, but I've been around here a long time. I was in 25 different assignments. So it is a big, complex place. It has its own culture. It has its own mystery. But it is a superb organization. I say that having been exposed to other large organizations. There's nothing like it.

L.G.: Well, in your role as "the pope," are there any mysteries to you? Anything you don't understand?

R.K.: Define "mystery." I'm sure I don't know what's happening in lots of quarters, but that's true for any major organization. There's a system in place that makes it run and makes it perform, I would submit, very effectively, 24 hours a day, seven days a week. Do we make mistakes? Sure, but this is the type of business in which you can make mistakes.

L.G.: What mistakes have you made that you regret, or that you learned from?

R.K.: I would say I really don't look back. I can't think of any mistake right now that jumps out at me, you know, that I would necessarily learn from. I'm sure there are some, but I don't dwell on them.

L.G.: Another incident that you had to deal with not so long ago was the Sean Bell shooting, another matter of huge public emotion and controversy. [In the wee hours of November 25, 2006, in Queens, plainclothes and undercover officers fired 50 times during a confrontation with a group of men leaving a bachelor party, wounding two and killing one, Sean Bell, on his wedding day.] What's the status of that?

R.K.: We did what we had to do. We asked the Rand Corp. to come in to take a look at our shooting policies. They did that, we put in place an internal undercover review committee, made up of chiefs from both inside and outside the department, who had about 250 years of police experience collectively. They made about 18 recommendations, and we adopted virtually all of those recommendations, including a breathalyzer test. We're the only major police department in the country that has that. After an officer uses a firearm, he takes a Breathalyzer test. So we responded to that situation. There is still an examination being conducted by the federal government to determine whether or not there was any federal violations involved in it. In the meantime, the case went to trial, the officers were acquitted. Administrative charges had been brought on these officers, but they've been put in abeyance. We've been asked not to go forward with those charges until the Justice Department finishes its examination.

L.G.: By the way, were you ever up for F.B.I. director? Louis Freeh got the job and you were a candidate?

R.K.: I was asked, yes, when I had this job the first time. I got a call from [Clinton White House Counsel Bernie Nussbaum], and I was asked if I'd be interested in it.

L.G.: Tell me—I noticed you gave a speech in France, at the European Policing Conference in Paris. Nice trip, Ray!

R.K.: You've been googling me! When was that?

L.G.: May 22nd of 2000. You were just talking about police work and some general principles, and you talked about the 10 commandments of management, and you only enumerated three. But I'd like to talk to you about those and any others you have. You said, "Do not hire your problems," "Do not economize on ethics," and "Do not resist outside help." Why don't you talk about those, and what are some of the other management principles that you operate by?

R.K.: I think those three are sound. I think vetting, making certain that you're hiring the best possible people for the job, given certain restrictions in civil service that you have to adhere to. But here we have a very intense background investigation, and we've hired almost half the department since 2002, and crime continues to go down. I would submit that is an indication of the quality of people that we've been able to hire.

L.G.: Even when their entry-level pay is pretty bad?

R.K.: That's right. I've had people in this office, I tell them we are in no way going to compromise our standards, I don't care if we can't hire one person. And I made that very clear, and I knew it was a temporary thing. As a matter of fact, now our applications and people expressing interest in the department, are up 90 percent as a result of the economic situation.

L.G.: Anyone from Lehman Brothers?

R.K.: Probably—also the fact that the salary is now up to $40,000. It went back up in August.

L.G.: So what have you done with those poor souls who joined at $25,000?

R.K.: Well, some of it is retroactive. The contract for the police officers has been lagging for several years. What was the other one we talked about?

L.G.: "Don't economize on ethics."

R.K.: I've put in place an ethics board here where we have chaplains and other people who you submit ethical questions to. I have promoted, with great emphasis and increasing numbers, people in our internal affairs bureau. Promotions have been disproportionate in that area. In terms of outside help, I've used McKinsey & Co. I've used Rand. I've used McKinsey for a few things, McKinsey came in to look at our lessons learned from September 11th. McKinsey also looks at our personnel practices, and Rand looked at our stop-and-frisk policies, also our firearms practices. We certainly are more than willing to use business practices, and obviously recognize esteemed consultants in the commercial world to help us to bring to bear their expertise.

L.G.: Since you're a public official with a very high public profile, how important is being a communicator to the public at large as well as within the department? Let me read you something—this is from a Newsday columnist: "Ray Kelly has that classic, just-the-facts, tough-cop look. You know, with the pug-nosed broad features, the close-cropped gray hair, and the body that seems to be built out of solid rock. But don't be fooled. The police commissioner is a silver-tongued slickster of the first rank. He can take a dubious line and spin it more artfully than a whole army of public-relations wizards."

R.K.: Really? Hmm.

L.G.: Wrong? Right?

R.K.: Communication is part of the job. Did you read the Village Voice last week? I saw an article in it, "Ray Kelly's Surprising Under the Radar Campaign." This article presupposes that I would only go out and do a good job because I wanted to be mayor. In there, you'll read positive statements from the Muslim community, from the Orthodox Jewish community, and from Calvin Butts. So, in terms of I go out and speak to them, it's gets to your point—

L.G.: When you took over this most recent tour, you went to a lot of black churches—

R.K.: Well, last time I did it and this time I've done it as well. I mean, you have to be police commissioner of all the people. We have made this department the most diverse police department in the United States. In our police academy right now, we have recruits from more than 58 countries, and that's incredible. We have more Urdu, Pashtun, Hindi, Farsi, Fukienese speakers than any law-enforcement agency anywhere.

L.G.: Fukienese?

R.K.: Fukien Province in China. We have a significant population in the city, but it's been hard to get those speakers. The dialect is difficult to understand, it's different than Mandarin or Cantonese, significantly different. So we've done an awful lot here to make this department look like the population we police, the most diverse city in the world. We've got the most diverse police force in the world, and we've increased the numbers dramatically in this administration. This department is now 25 percent Hispanic, Latino, and 17 percent African American. The city is about 24 percent. Asian went from 1.5 percent to 4 percent. We just started a Muslim officers association, which we supported significantly. I think it is even mentioned in that Village Voice article.

L.G.: Was the thesis of this article that all this was for naught because you can't run for mayor?

R.K.: I guess so. That's it—the only reason you'd do a good job. "Ah, now this guy will sit in his office the rest of his time."

L.G.: But you wouldn't deny that you have some pretty good political skills and communication skills, would you?

R.K.: I hope so, I don't know.

L.G.: I haven't read too many incendiary quotes from Al Sharpton about you lately. What other management principles do you use? You obviously have a degree in public administration from Harvard, and you have a law degree from St. John's.

R.K.: Yes, and I have a Master of Law degree from N.Y.U.

L.G.: Any other credentials?

R.K.: I'm a graduate of Manhattan College. I'm a retired colonel in the Marine Corps Reserves.

L.G.: And you lead combat units in Vietnam.

R.K.: That's true.

L.G.: That's a pretty impressive résumé.

R.K.: Thank you.

L.G.: You don't need me to tell you that. Did you pick up some management principles from Harvard?

R.K.: Yes, I'm sure I did. I think my foundation in terms of management and leadership really rests with the Marine Corps and the training I received there. I talked to other Marines and other people in the service, not just the Marine Corps, and I think you use those skills every day, whether you're conscious of it or not—things like leadership principles, integrity, job knowledge, decisiveness, dependability, bearing, enthusiasm, endurance, judgment. Those sorts of things stay with you.

L.G.: So the Marine Corps was very formative for you in terms of being a leader, being a manager.

R.K.: Some of these things you do intuitively, reflexively, but when you think about the foundation of it, yes. A little thing, but if I go to a buffet with people, I have to eat last, because the officers eat last. It might sound corny, but these kinds of things stick in your head.

L.G.: Even if there's caviar and it's all gone?

R.K.: Well that's tough. I'm an anchovy fan, I like the salty stuff. But it's kind of the thing that they instill in you—the fundamental or foundation training that you get in the service and in the Marine Corps in particular. I had three older brothers in the Marine Corps. I had no choice, I had to go in. They beat me.

L.G.: They beat you to it?

R.K.: Physically.

L.G.: Now you have a reputation of being a micromanager—that there's very little you won't put your hands into.

R.K.: If you think you can micromanage 52,000 people, you're crazy. I think there are certain things you have to pay attention to more than others because it has to do with integrity, to do with the reputation of the organization. So there are certain issues that you have to look at more closely than others. I would say micromanagement by definition is not good or bad, it is situational. It depends where you find yourself, and the instrumentality that you have to carry out the policies.

L.G.: Is it important to you to let the people who work for you do their jobs without too many drive-by management decisions?

R.K.: It depends on the issue, and it depends on the person. Because, ultimately, what happens in the police department has an impact on me. People see me as the face of the department, so there are certain areas and certain functions that I'd have to pay particular attention to.

L.G.: Do you think the skills that you have are translatable to the corporate life?

R.K.: Oh, I think so. I think leadership and management styles and skills are transferable. Because you're working with people, ultimately. If you're a scientist working in a corner someplace, maybe not. But if you're working with people, I think I can get people to perform and work for me, and that's ultimately what most of the private sector is about.

L.G.: And it's basically the only metric that means anything in terms of evaluating your performance is the crime rate?

R.K.: I wouldn't say that. It's one metric. What we said when this administration came in is that we'd govern by the three C's—that is crime suppression, counterterrorism, and community relations, or community affairs. And I think you can look in all three areas, and you're going to see significant accomplishments in this administration.

L.G.: One of them, counterterrorism, you know it's working, I suppose, if there's no incidents. The other one, community relations—that's pretty subjective, isn't it?

R.K.: I don't know how subjective it is. We've done surveys and we have over 80 percent, in some cases over 90 percent, approval ratings in terms of service provided by cops. That says a lot about people's perception of the job, how the department is doing. We're always going to have tension in some areas. What do we do as a function? We arrest people, we give them summonses, we're the bearers of bad news, we use force, sometimes we use deadly force. So we are always going to have some tension in certain areas, but by and large when you step back, I can say this, having been around a long time, that the relationships that we have with the communities we serve are better now than they have ever been, and they've continually improved. The message to people in the field is "Hey, you work for those people, you've got to make them happy," and virtually every precinct that I go to, and I go to a community council meeting, people are happy with their precinct commander, happy with their cops, generally speaking. Sure, are there exceptions? You know, "This cop said this, that," yeah, in 23 million citizen-contacts a year.

L.G.: But in terms of the way the police department is perceived, there's a lot of emphasis, at least in the press, on the crime rate. How long can it keep going on the right trajectory? And how do you explain if it plateaus or goes up?.

R.K.: Well, let's worry about it then. It hasn't happened.

L.G.: What C.E.O.'s do you admire? You mentioned the I.B.M. guy.

R.K.: Oh…that's a good question. Obviously Jack Welch. I have his book. And [Lloyd] Blankfein from Goldman Sachs, Hank Paulson. I admire Bob Rubin. I worked for Bob Rubin in the federal government, he asked me to become the undersecretary of the Treasury, and I did that when he was there.

L.G.: And are there any particular qualities that you feel—

R.K.: Hey, the No. 1 person I admire is Mike Bloomberg because he has done a magnificent job here.

L.G.: Oh, damn, I was hoping you'd forget to say that.

R.K.: Think about where this city was in November or December 2001, and think about where it is now. Last year was a record year for tourists in the city—it's remarkable. I have the editorials. This city was going to hell in a handbasket. Homelessness was going to break out. It wasn't a question of crime going up, it was how much crime was going to go up. People would've been willing to accept, talking about crime levels, if it was going to level off in 2001, we'll take it! It was guaranteed everything was going to go bad, but we have had almost 600 fewer murders in the city than we would've had if we continued at that level. We had about 150,000 fewer index crimes. But look at the tone, the tenor, the spirit, the pace of this city, post 9/11, and you've got to attribute that to one person, in my mind. Certainly, other people have contributed, But Mike Bloomberg in terms of leading the city. My hat's off to him. Obviously he's my boss, but I'm very impressed with his leadership style.

L.G.: And is Bill Bratton doing a good job out in L.A.?

R.K.: As far as I know. People ask me that, and this is very parochial job. I have no idea what's going on in Philadelphia, Washington, Boston. I'm looking at these five boroughs, and I'm also looking at the people that we have overseas, getting information from them, but I don't know what's going on.

L.G.: People thought maybe there were some personal animus between you and Bratton because of the way they came in and criticized programs you had set in place.

R.K.: That's not the case. I don't think about that. I've done a lot of things since then, I wish him well, I think he's doing well. I just don't know.

L.G.: And same with Rudy?

R.K.: Yeah, Rudy, you know, I have no relationship with him. I went to his wedding. He invited me to his wedding.

L.G.: Which one?

R.K.: The last one.

Ivanka Trump

Tue, 04 Nov 2008 05:00:00 GMT

Like her father, Donald, Ivanka Trump is a celebrity who stars in the NBC reality series The Apprentice and regularly graces magazine covers. A former fashion model, she's a lot easier on the eyes. Unlike her dad, she embraces diplomacy and shies away from bluster. More than that, she is a serious businesswoman.

At 26, the Wharton-trained Trump is a top executive in the family real estate empire, having earned her stripes working for rival real estate mogul Bruce Ratner. These days, in a souring economy, she continues to travel the world checking in with various projects and looking for distressed properties.

"There's no access to capital, and if you have the capital available, there are incredible deals to be made," she tells Portfolio.com in an exclusive interview. "We're buying golf courses left and right across the country. I think large commercial assets will soon start to become available. There are just great deals to be made, and these are the times people should be buying. If you have the ability to do so, which is a big 'if.'"

Lloyd Grove: You're the vice president of development and acquisitions of the Trump Organization. Describe to me what all that means and what it is you actually do.

Ivanka Trump: I actually joke with my father that ultimately at our organization, titles mean very little. It's my father and then everybody else. But as vice president of development and acquisitions, I'm involved in every aspect of our new construction projects. A lot of our projects are internationally based at this time, most of them are actually outside of the U.S.—from Dubai to Panama to Scotland. We're really building all over the world right now, so in my capacity as vice president, a lot of what I do is get involved in the acquisition process, from sourcing the potential opportunities and then the initial due-diligence process, but then, of course, I follow the deals through to predevelopment planning, design, interior design, architectural design, sales and marketing, and, ultimately, through operations. One of the things that I've done and been very active with since joining the company four years ago now is get involved with the ramp-up and the development of our hotel-management company, called the Trump Hotel Collection. We've had one flagship property here in New York that we managed on-site with the general manager of the property who reported directly back to us here at the Trump Organization.

L.G.: Is that the Columbus Circle property?

I.T.: That's right, but we had a lot of projects in the pipeline, from Chicago—a 92-story tower with the 350 key hotel—that would've been opening within two years from the time I joined, which opened January 31 of this year. We had Las Vegas, which is a 1,300-room hotel condominium, that was also in the pipeline. And the hotel-management company just generally allows us to enter markets that we may not enter as developers, really as an operator and in a branded capacity. So I worked with my brother Don, and we really developed a great company and really devoted a lot of time to the development of that particular part of our organization.

L.G.: Is that something that you and Don basically launched?

I.T.: Yeah. Again, we're a family company, so it wasn't in isolation, certainly, but it's something that we've spent a considerable amount of time focusing on, and it's something that we really wanted to build and make spectacular. We started with the flagship property here in New York. Now we have 13 new construction hotels, all fully financed, all under construction, opening within the next three years.

L.G.: How many of these projects are projects where you're taking a percentage because you're licensing the Trump name, versus projects that you're actually involved in from start to finish, from the financing to the construction, to everything?

I.T.: Well, Trump International Hotel Tower in Chicago, which I mentioned, is a 92-story building, the tallest residential building in the United States, just surpassing Trump World Tower here in New York, and that's 100 percent our job. We'd won an award with Condé Nast Traveler within two months of being operational for the hottest new hotel in North America. Forbes Traveler gave it the best business hotel. The hotel component of the building opened in January, and the residential component is opening as we speak. We're releasing floors every month. The retail component will be the last phase to open, which will be in the third quarter of next year. [The Wall Street Journal recently reported that the slowing economy has put the Chicago venture under pressure, with $1 billion in loans coming due and many condominiums yet to be sold.] In Las Vegas, we have a partner in Phil Ruffin, but we managed the construction and development of the project, so that is one of our jobs as well, which is a 1,300-room hotel in Las Vegas. And I'm very proud to say one of the things I really believe we do best at the Trump Organization is build in an environment that is arguably one of the most challenging construction environments, and there have been plenty of pros who have gone out to Vegas and failed in that aspect.

L.G.: Why is it one of the most challenging?

I.T.: To me, budgets from a contractor perspective, from a building perspective, it's just a very challenging market to build in. And you've seen that with projects, real mega-projects that are going hundreds of millions of dollars over budget, that are being delivered well behind schedule. We actually delivered our building four months ahead of schedule, on budget, and with less than one percent in change orders.

L.G.: Is Vegas construction still mobbed up?

I.T.: We've actually had a great experience with our contractors. Perini is doing our development.

L.G.: All I know about that is what I saw in Bugsy.

I.T.: I think that was a few years ago.

L.G.: That was when Warren Beatty was wearing less makeup.

I.T.: There you go, that's right. So to answer your question, internationally we tend to find partners who are world class from the development perspective, and who are able to execute and oversee the day-to-day construction aspects.

L.G.: Like in Dubai, its licensing a deal, right?

I.T: Yes, but then we'll manage the hotel asset. So one of the things that we have that's, I believe, unique from a hotel perspective, is there are no other operators who are also developers. So we lend value through the whole process. Not only do we have the capability to oversee design and development, whether or not we oversee the actual construction, but we get extremely involved programmatically in the building, whether it be residential or hotel. In terms of programming the building, whether it's floor plans, whether it's allocation of common space, whether it's backup house, this is something we love to do, and we do on all of our projects, irrespective of whether it's a license or whether it's our own job. One of the things that I found that makes our model so viable is ultimately we're doing deals with developers, and we speak their language. We don't just come from an operator perspective whereby we're requesting that they build things that we would never build on one of our own jobs. So it's given us superior negotiating stances as we look to enter markets, in that we add value through all of these processes, through the sales and marketing perspective. Obviously we have an incredible internal database of Trump buyers who are loyal to our brand and will travel with us from project to project, from a design and construction basis, from affiliations with some of the best restaurateurs and retail tenants. All of this we bring to the table as we go into these deals.

L.G.: I guess what I'd like to know is how many projects are in the pipeline, with all the financing in place, versus projects that you may want to do but can't because of the absence of credit and just hugely scary economic times?

I.T.: I think new construction is certainly a challenge in this environment.

L.G.: That's such a euphemism, Ivanka. It's a "challenge"?

I.T.: It's almost impossible.

L.G.: Okay, thank you, I want you to speak frankly to me.

I.T.: I understand, but that's not true in all markets, and when you have your construction, when you have your financing in place as we're very fortunate to have in most of the jobs that we currently have out there, it's an incredible advantage in certain perspectives. There was an enormous pipeline of potential projects that I think we all knew a year ago would never ultimately come to fruition but were still perceived as competition in certain marketplaces—competition for retail leases, competition for deposit interests, competition from prospective buyers. Those projects will never get built, and people recognize that. People aren't interested in putting down deposits so that they can wait six years for a developer to put together the financing and ultimately have that locked up in escrow. So for the projects that are under development—and we're fortunate to fall into that category for the majority of our jobs—we actually have much less competition today than we did. Across the board, obviously, velocity of sales has slowed, but you know that would be the plus for the projects that are actively going up. I don't think for a very long time in most of the markets domestically, which isn't the case internationally, but for most of the markets domestically, you'll be seeing a lot of new projects.

L.G.: And you talked about velocity of sales, so projects that are going up and will be completed, it'll take a longer time to fill the buildings.

I.T.: It depends on if you're in a presale market where you have certain thresholds to meet, but, yes, of course, these are very uncertain times, and I think a lot of the rendered plans that people once felt comfortable buying off of, they're just not going to do anymore. Why lock up your money for several years if you can buy into an existing asset or one that's under construction?

L.G.: The assets are actually declining in value even as we speak. It's a scary situation.

I.T.: Well, you know, the markets we choose to enter, I don't think you see that in the way that you do if you have a diversified portfolio in multiple states within the country. The markets we're in—central Chicago, New York City—are very strong markets.

L.G.: And Vegas, is that a strong market?

I.T.: I don't think that in those markets there's a fundamental decline in the intrinsic value of the real estate. I think there's ebbs and flows in terms of demand. We're very fortunate, and I think one of the things that we are greatly reliant on and we are uniquely able to access in this environment, is an incredible database of international buyers. I would argue that we're the only branded condominium developers that have international recognition. There are many other condominium developers who may or may not be known to a small group of people, but I wouldn't argue that they're brands in and of themselves. So we have the ability, and this has increased greatly due to The Apprentice, due to the fact that we have so many projects under construction or in the development process all over the world, is that we're accessing brokers that we never before, 10 or 20 years ago, would have ever had access to. We're accessing markets that we never would've been able to penetrate, so we have an incredible database of loyal buyers all over the world, and that really has been a hedge against the downturn.

L.G.: Are you concerned, now that oil is back at $70, that your Middle-Eastern customers will have less money to spend on your projects?

I.T.: If you had said oil was at $70 two years ago, you would've said that was very high, so that does not concern me. I think, in terms of oil, I would love it to be much lower than $70, as would most people. It has changed so radically that it's almost impossible, sitting here today in New York City, to even place a gambler's bet on what it would be tomorrow or even an hour from now. I mean, high oil prices have a negative effect across the board for multiple reasons—obviously from a travel perspective, from a hospitality perspective, they're cutting flights left and right all over the country. But then, naturally, for the cost of construction, they're fundamentally relate. So yes, the increase in oil prices is a disaster for the economy.

L.G.: How do you plan for a depression? People say that's where we're headed, and I don't know who of us would've thought that we'd see the government bailing out merchant banks that are over 100 years old.

I.T.: That's amazing.

L.G.: I guess most people were surprised about how bad things were getting, but did you have any notion that things were not quite right?

I.T.: Oh, absolutely. Primarily, my father was very ahead of the curve in his pessimism about the future of the market, so starting around two and a half years ago, he was saying that we're in for a severe and extreme economic downturn—and this was at a time when people were still arguing that bubbles no longer exist, and now that we have better controls over regulating the financial markets, we'll never experience another great recession or great depression. So I very much was cognizant of this. I think I was surprised at the magnitude of what we're seeing. I don't think there is anyone out there who could've foreseen just how catastrophic this would be on a global level.

L.G.: On a fear level, how scary is all that?

I.T.: I think it's extraordinarily frightening. I mean, you feel it. You walk the streets of New York today, and people are depressed in a way that they weren't two months ago. And if you're at all cognizant of the environment around you, it's impossible not to feel the anxiety that's in the air for people that are being directly being affected, people who are just more cognizant of that which they're spending, that which they're doing. I think we're in a very fortunate situation. For the past several years, my father has believed very firmly that prices were out of control, that good deals weren't being made in terms of asset purchases, and we really took a step back and we focused on growing our model. Internationally we focused on growing our management company, we focused on our license deals, which provide incredible returns to us.

L.G.: With very little risk, or zero risk on licensing?

I.T.: We'll only associate ourselves with great projects. The risk is hurting the brand, which is ultimately our greatest annuity, so there's nothing more valuable to this organization than our track record of execution.

L.G.: Because you know if a Trump project hits the shoals, it's not going to be ignored.

I.T.: One hundred percent, and we're very careful and we're very protective of that brand. And that is why we're as involved in every single deal as we are. Because, ultimately, this is my brothers' and my legacy, and this is something we look to continue to grow. And my father has done such an incredible job building it to where it is, and we want to continue in that same vein. So we're fortunate from the standpoint that my father very much learned lessons the last time he went through this downturn, and he was in a much different situation in the early '90s. A lot of people didn't learn lessons, and I think you're starting to see that a lot of bankers didn't learn lessons, a lot of developers didn't learn lessons, and people exposed themselves in a tremendous and very real way. So, from our perspective, obviously everyone suffers, everyone wants the economy to be blazing hot. But there are, for the first time, really great deals to be made, and we're in a situation and position to make them.

L.G.: Because you can pick off things on the cheap now?

I.T.: Absolutely. You're not bidding against 50 other people. You know, there's no access to capital, and if you have the capital available, there are incredible deals to be made. We're buying golf courses left and right across the country. I think large commercial assets will soon start to become available. There are just great deals to be made, and these are the times people should be buying. If you have the ability to do so, which is a big "if."

L.G.: Just out of curiosity, has your father told you just how horrible and scary it was when he went through his huge crisis back in the '90s? And what was the lesson from that?

I.T.: My father very much reinforces all of the lessons that he learned. He was really on the brink, and I respect him incredibly for the fight he put up to not suffer the same fate as many of his colleagues, which was ultimately bankruptcy. He made it through it without having to declare bankruptcy, despite being in a very precarious situation, and he remembered those times, and he never wants to go back there.

L.G.: Do you think you inherited the nerves of steel that are necessary in those situations?

I.T.: I certainly hope so. We'll see, right? Nobody knows. Everyone talks a big game until you're in that moment, but there are a lot of people who just don't—they don't physically have the stomach to continue to fight in these really challenging times, and that's unfortunate. It's purely his stamina and his fight that got him through, and I hope that I've inherited that. I'd like to think that I did, but we'll see.

L.G.: Walk me through briefly what the Trump Organization has in terms of buildings and projects.

I.T.: Well, we have 70 projects in our active pipeline, and we have more than that that are actually constructed. I don't know what the exact number is. We're a private company with the exception of the gaming company.

L.G.: And you're on the board of the gaming company.

I.T.: I am. I'm apparently the youngest director on a publicly traded company, somebody just told me that the other week. I thought that was sort of funny. I'm 26.

L.G.: Really—getting long in the tooth, aren't we?

I.T.: I know, look at that.

L.G.: So you have 70 things in the pipeline or coming to fruition.

I.T.: They adopt, they're really hybrid in nature. Some of them are pure hotels, some of them are resort hotels. We have an incredible project under construction in Cap Cana in the Dominican Republic, whereby we have an incredible horizontal resort hotel, golf course, and then residential villas. Then we have the classic condominium vertical tower, urban tower, we have hybrids, hotel condominium with commercial components, we have pure commercial buildings. We have a project in Turkey right now with our partners Dogan. They're Turkey's largest conglomerate, phenomenal partners, and it's a mixed-use building with one residential tower, one commercial tower, and 400,000 square feet of luxury retail space at the base.

L.G.: Tell me which projects that you brought in and how you hear about things.

I.T.: I've worked on all the new construction projects, but normally my brothers and I are involved in the initial vetting of the deals. Sometimes it's reactionary, whereby people bring us the opportunities or they're looking for an operator from a hotel perspective. Other times we identify markets that we're very bullish on, and we'll actively travel to those places and meet with the Donald Trumps, if you will, of those areas. So we're very active right now in China, we're very active in India, really educating ourselves on the lay of the land, identifying the markets that are most strategically important for us to enter.

L.G.: What are your criteria? What makes things attractive to you in those markets?

I.T.: Obviously you look for growth and you look for basic stability. You also have to look at the price point that you can sell for, even if you're selling for a premium of 50 percent to market, which is not unusual, especially when we enter emerging markets. In Panama, we sold at a 500 percent premium to anything the luxury market has ever experienced prior to our entry. Even in Hawaii, a year and a half ago, we sold $729 million worth of real estate in six hours—10 percent hard deposit for a 50 percent premium to luxury market. Very sizable premiums relative to the high-end luxury competition in those markets.

L.G.: That day is gone.

I.T.: Well, yeah, but we have projects that are actively selling. We've brought our residential tower in Turkey to market in the middle of the summer, which is never a great time to introduce products, but we were ready to go, and we already have 75 percent of the building under contract at very high price per square foot relative to the market. So our commercial tower in that building is 100 percent leased, and we haven't even officially gone out with our leasing materials for that commercial tower. It was just based on interest, and it was literally reactionary to the demand of people who wanted office space in Trump Towers Istanbul. So we have many projects that are actively selling. I sold 40 units in Panama last month. It's a 1,000-unit building, we've sold over 90 percent of it.

L.G.: Who are the people who were buying?

I.T.: A lot of people from America, particularly South Florida, who have been priced out of the market—because at the end of the day, prices for luxury real estate in South Florida are much higher than in Panama. That said, the quality of the product you can deliver in Panama probably exceeds that in Florida because of the cost of construction and relative products. So we've had a lot of baby boomers who are leaving South Florida and coming to Panama. They want to go with a name and a brand that they trust and that they know. There are incredible tax incentives for relocation, there's a brand new Johns Hopkins medical facility that has been built right in Panama, plus there's a westernized legal system which makes people very comfortable with it, and the Panama Canal extension, etcetera. All these things were reasons why we wanted to be pioneers in that market, and we have been rewarded for doing so. The world is suffering, people are more hesitant before putting down deposits, we're selling it at an extremely robust pace and are very comfortable.

L.G.: By the way, since we're in the presidential campaign season, does it matter who wins, in terms of your business?

I.T.: I think so. But you talk to developers and there's such a variety of thoughts on this. I think it depends on where your projects are located. I think if you're a homebuilder, you may have different thoughts than somebody who's focusing on more international type cities like New York, Los Angeles, Chicago. But, you know, I don't know what the right answer is on that.

L.G.: Your father obviously endorsed McCain. Do you agree with him?

I.T.: I do. On many of the social issues, I'm more inclined to uphold more liberal thoughts. In terms of fiscal policy, I think I'm much more aligned with McCain.

L.G.: And then I assume tax policy, as well.

I.T.: One hundred percent. And I think McCain came out with a very strong tax policy. I'm just not sure if it's too late. You know, Obama is a very impressive man as well. I have great respect for him. I disagree with most of his financial policies, but I think he is a very smart man. I think he's very substantive, I think he's great in his own way. I'm also amazed by him. I mean, he really came out of nowhere and has done a phenomenal job in his campaign. He's just not who I'm going to be voting for.

L.G.: Tell me, what's the rhythm of your day?

I.T.: Rather chaotic. But that's part of the excitement of working here. I just opened my calendar. For example, this morning I met with a large group of Korean gentlemen who are putting together a rather enormous, by really any standards, master plan for the city of Inchon. They were interested in looking at ways to partner in South Korea. Then I had some meetings with a potential Chinese partner for my jewelry company at the store—it's called the Ivanka Trump Collection, a no-brainer. Then I had some internal meetings about Las Vegas, I had a construction meeting about a project that I'm working on in Egypt, we had our weekly hotel operations meeting, I had some meetings with my construction team about the floor plans of a project that we're doing in Puerto Rico, I had four bankers in, then we went to film The Apprentice just around four o'clock, then I came back.

L.G.: You had four bankers in?

I.T.: It's a little unusual, speaking to bankers. My schedule should be more free because bankers aren't making meetings because there's probably not all that much most of them can do at this point. So it's interesting, but I guess we're constantly looking at new jobs, whether it's maintaining our existing ones, working on corporate strategy to grow the various segments for all the operations, from golf to hotels to condominiums, domestically and internationally, to discussing specific projects and future projects. There's a lot of stuff going on, filming The Apprentice simultaneously. And obviously I'm working on my jewelry company.

L.G.: And also you have this brown-bag-lunch thing?

I.T.: Yes, well, that's a one-day event in which I'm working in conjunction with ConAgra to facilitate the promotion of a new product that's coming out.

L.G.: And one of the funnier phrases I've come across lately, there was a wire story that said you were involved with an "undisclosed lunch product." It sounds like something that maybe Dick Cheney should be eating.

I.T.: It sounds like something from my cafeteria. It is not mystery meat. It's actually a great product with a great company, so it's fun to be involved. It's not really representative of anything I do on a regular basis, it's just sort of for fun.

L.G.: You've been pretty selective, you've had opportunities. Which opportunities have you turned down?

I.T.: I turn down things that are time consuming and not in line with my interests here at the Trump Organization. I don't know what the specific criteria are, but obviously I'm working toward creating a brand with Ivanka Trump jewelry, and I try not to do things that undermine that. That said, once in a while you find great opportunities with great and strong companies, and it's worth exploring even if it's outside of a field that you're typically interested in. This ConAgra product is geared at active and busy people, particularly in an office environment that would like something other than a frozen lunch or, you know, sort of a bagged deli meal.

L.G.: And it's injected like Botox? Or you eat it?

I.T.: No, it's definitely edible. It's actually very good—it's a fresh pasta.

L.G.: By the way, is the available money these days for your core business—the construction and commercial real estate and branding—is that coming mostly from the Middle East and Asia?

I.T.: No actually, we have projects in South America booming, and we're looking at an enormous amount of flow coming out of Brazil. We're seeing, like you said, Asia, particularly China. Japan has been obviously hurt in the recent market downturn, but the banks have been very conservative in their lending practices, so while the stock market is suffering in a way that's similar to ours, the banks are flush with cash. So in areas of the world that are open to and interested in real estate projects, there's still a lot of interest. One of the nice things about having a global brand is the ability to access those different markets.

L.G.: Right. You got your degree from Wharton, summa cum laude. Did that prepare you in any way for what you're doing now?

I.T.: Well, I mean, it never hurts. I think that business school is great. I personally loved my experience at Wharton. I think it educates you certainly on how to think within a business context. I don't think it's a required degree. In some ways I wish I'd gotten a law degree, and I think a business degree is great. I do think that, given the right opportunity, you can definitely learn on the job. The question for a lot of people is if they can get the opportunity without the degree.

L.G.: What did you hear about other real estate or large development companies? I mean, are they in as good a shape?

I.T.: I think obviously not. You read a lot of stories about what's happening out there, a lot of very experienced developers are—

L.G.: They overpaid and are overleveraged, huh?

I.T.: Yeah, I mean, these things happen. That's the nature of real estate. You build in cycles—the larger the project, the larger the cycle.

L.G.: Are you worried about the Tishman building? [Trump's boyfriend, Jared Kushner, owner of the New York Observer, as well as a top executive at his family's real estate empire, Kushner Properties, last year purchased the skyscraper at 666 Fifth Avenue for $1.8 billion—a very high price—and news reports suggest it is highly leveraged.]

I.T.: They have a lot of buildings. They have more than one building.

L.G.: Obviously it's a backdoor question, isn't it?

I.T.: It's a little bit of a backdoor question. Look, there are pros and then there are dentists-turned-developers who certainly were behind every stone and around every corner for the better part of the last four years. I think the strong will survive. I think there'll be probably some surprising casualties along the way. But when you talk about the real pros in this business, many of them aren't 20 years old or 30 years old or 40 years old, you know? The people who have sustained have done so over a long period of time and over many, many, many cycles. Which is why sometimes it's surprising when you read about some of the more seasoned guys walking the plank. It works sometimes,and you hope you have the ability to get out from under it. I find myself to be in a fortunate situation, but, again, I'm 26 years old. I think I'll experience probably a few more of these in my lifetime.

L.G.: What does the future hold for you?

I.T.: I think I'll be exactly where I am today, in 10 years, in 20 years, with a lot more experience under my belt. One of the great things about what I'm doing is it's a really unique experience from an educational perspective, to A, be able to work so directly with somebody with the experience of my father, B, be able to have jobs that are ongoing and in various stages of construction across so many different cultures, in so many areas of the world, utilizing so many different architects and interior designers and working with them, learning from them, different contractors, different sales and marketing folks. Each job is so unique and so specific, and I'm so intimately involved with it, that I get to learn an enormous amount in a much shorter period of time. A lot of times, you're focused on one job, and that's your life for four or five years and that's great too. But in this case, I have multiple jobs that are my life and they are being built in very different contexts, so it's exciting stuff.

L.G.: Your father obviously took his father's successful business and grew it by multiples. Do you and your brothers want to do the same thing with your dad's business?

I.T.: Well, we wouldn't be very effective employees if we didn't. Obviously, we have growth aspirations. He's created an incredible foundation upon which I hope that we're able to expand the brand. I hope our kids are able to expand further, but he's got very big shoes to fill, and I'm just happy right now learning from him and working with him and doing what I can.

L.G.: Are you really so competitive that before playing a game of the Trump version of Monopoly, you did a lot of research into Monopoly theory so you would win?

I.T.: No, I don't know where that story came from. It kind of sounds like me actually, but I'm pretty sure that didn't happen. I don't really have that kind of time. But I like it. In theory, I think it sounds like a good idea. I am pretty darn competitive, though.

Tina Brown

Thu, 23 Oct 2008 04:00:00 GMT

In Tina Brown's favorite novel, Scoop—Evelyn Waugh's classic send-up of Fleet Street—the fawning editor of the Daily Beast, Mr. Salter, must maneuver delicately past the iron will of his domineering proprietor, Lord Copper. "Up to a point, Lord Copper," Mr. Salter purrs instead of saying "no."

Now that Brown has launched her own version of the Daily Beast—a buzz-worthy website backed, to a reported $18 million, by billionaire media lord Barry Diller—she claims no such mealymouthed evasions are necessary.

"The thing about Barry is that he enjoys vigorous conversation," Brown told Portfolio.com in an exclusive interview last week, as TheDailyBeast.com was rounding out its second week in the Frank Gehry-designed Chelsea headquarters of Diller's IAC/InterActiveCorp. "I love his input, and he understands that I'm an editor, and we do what needs to be done."

At 54, the British-born, Oxford-educated Brown—perhaps the most famous magazine editor on either side of the Atlantic—is a virtuoso at handling hard-driving visionaries with big demands: Condé Nast mogul Si Newhouse (for whom she was the groundbreaking editor of Vanity Fair and the New Yorker); movie magnate Harvey Weinstein (with whom she launched the short-lived Talk magazine with an over-the-top bacchanal on Liberty Island); and now the famously difficult Diller.

In between, she has hosted a CNBC television show, written a bestselling biography of Princess Diana, and, with her husband Sir Harold Evans—himself a famous newspaper editor—become a glittering fixture of Manhattan social life. At long last, Brown is hoping to make her mark on the World Wide Web.

Lloyd Grove: Can you answer the question, Why now? Arguably people might say that you and the Daily Beast are a little late to the game. But, then again, what's the game?

Tina Brown: The whole point of the site is being late to the game. I mean, the site is a response, with the overwhelming volume of sites, and the site is a simplification so that you can go to the site and get the speedy, fast, clear, simple menu of what is purely interesting, exciting, or provocative, and not give everybody the huge, great big all-you-can-eat buffet.

L.G.: Walk me through just the process by which you decided to do this. Was this your idea? Was this Barry Diller's idea?

T.B.: It was actually Barry's idea. And he had the idea first, as a matter of fact, in 2006. And he asked me to do it and I said, "You know, Barry, I'm in the middle of my book. It sounds fun, but your timing is off."

L.G.: That was The Diana Chronicles.

T.B.: Yeah. I said I really can't do it. I said you have to get someone else. I said I regret that, but I just can't do two things at once, and he said, "Fine, I'll wait for you." I said, "Yeah, yes." I laughed. It's a nice thing to say, but it doesn't sound very convincing. However, he did. And no sooner did he read in one of the columns that I'd finished my book—just literally written the end—than he called me up and said, "Hey, I really want to do the thing we talked about, I'm still here." So, in fact, I had finished my book then and I said, "Well why don't I just come in and spend a few months sort of fooling around with dummies and layouts and stuff, no harm done after a few months if neither of us wants to do it. It'll be fun for me to kind of investigate the Web in a more intense way, from a managing point of view." Because, you know, I'd used the Web all the time and write columns and all the rest of it, but I hadn't actually produced a website. I hadn't done that physical, hands-on thing of doing a site. So I thought that would be fun to learn about as well. So I said "Okay, why don't I come in and do that?"

L.G.: In your previous lives, for instance, Talk magazine obviously had a website attached to it.

T.B.: Yes, but I didn't focus on it very much because Harvey [Weinstein] didn't want to bother with it, he didn't want to do it. So there was no focus on it at that time.

L.G.: And the same thing with the New Yorker.

T.B.: That was so long ago. That was another era.

L.G.: Right. And, of course, Vanity Fair. Forget about it.

T.B.: Yes, the past was another country. I can't believe how long it now seems. I did the New Yorker in 1992 through 1998. But I said to Barry, "I'll come in for a few months and see whether it's fun to do and whether you want to do it." It was a very, very loose kind of commitment. But then I did a dummy and then kind of showed it to him. He said, "Right, let's do it," and I just thought he was kidding. In a way, the idea was to have some fun and do some experimenting for a few months. I didn't really expect it to go forth from that because I didn't think I'd really want to do it, and I didn't think he would either. But he did, and he said, "Let's do it." I said, "What does that mean?" He said, "Go hire a general manager, and we're just going to do it." [He was just] being Barry.

L.G.: When did he pull the trigger?

T.B.: He pulled the trigger in January, and I then had to kind of totally get them to begin to put together a structure, and I hired Ed Felsenthal from the Wall Street Journal who was terrific.

L.G.: He was from Condé Nast Portfolio at that point.

T.B.: He had been at Portfolio, Edward Felsenthal. Don't call him Ed, he doesn't like being called Ed. He came aboard, I thought he was a terrific choice, he's just been absolutely wonderful. And then I had to find a G.M., and look, and I really knew that I wanted to have a business partner who was tremendously sort of tactile about editorial, who understands editorial. I didn't want to have somebody who kind of spoke geek speak at me and didn't understand the intense interface that I wanted with editorial and building a site. And we found Caroline Marks at Comcast, who was running a social-media aspect of Comcast, and I just liked her immediately. I thought she's very dynamic, and she's spirited and smart. She came on in June. Ed came in March, April. And now we have about 12 staffers on editorial and about eight on [Web technology].

L.G.: And these people don't work cheap, do they?

T.B.: Well, some of them do. [Laughs] I think every site has to have the right combination between the grownups and what we call the gremlins. I've got a whole bunch of very young kids here, a couple of interns from The Colbert Report, two or three who are right out of college, another two terrific young sort of web editors—one from Us.com, one from Nerve.com and ABC.com. And then we've also got what I call the kind of more mainstream media editors: Jane Spencer from the Wall Street Journal, Nicholas Wapshott from the New York Sun, and Bryan Curtis is from Slate.

L.G.: Obviously, for some of these people, these are real jobs and serious commitments on their part. You have the good luck to be working in a situation where this was Barry's idea, so he's invested in it from the get-go, psychically and emotionally. But what sort of commitment has he made?

T.B.: I feel well protected, and I feel that the site will have his full commitment, and everything about the way it's going, I think, is very encouraging to him. After two weeks I think we're all very encouraged at the response to it. Barry's a big believer in having faith and strong nerves as long as the numbers are going up.

L.G.: I see. And what sort of a commitment, just monetarily? I've seen $18 million.

T.B.: I don't want to [discuss that]. That's an excess. Websites are not as expensive to launch as magazines. There's a real sense in this company [IAC] of trying things. Barry stayed with a lot of the things that he's launched quite a long time, and quite frankly, nothing ventured, nothing gained, as far as I'm concerned. This is very much an exuberant editorial project for me. I've got to have a book as well—the Clintons are my next book—and I have that coming in 2009, and I've also got a production development deal with HBO. This is one of the things that I'm doing, but of course I'm getting my whole sort of gusto right now. We'll see what happens.

L.G.: You say that the Clinton book is due in 2009?

T.B.: Yes.

L.G.: Yikes, Tina, you have a lot on your plate.

T.B.: 2010, I'm sorry. Thank you. Otherwise, I'd be having my brains blown out.

L.G.: But, even so—

T.B.: Listen, it's a lot, but you know what, Lloyd? My children have grown up, it's astonishing what kind of energy you unleash when your kids have finally left the house.

L.G.: Describe to me what the business plan is.

T.B.: I don't want to go into a long-term business plan. We're still really in formation with our business plan. This has been very much a "beta" (in the dry-run, testing stage). We're seeing what it needs. What I love about Barry is he's basically saying let's blue sky something; see what it needs, what it requires, see what kind of investment and development we need. He's very much in listening mode, in evolutionary mode, with this project right now.

L.G.: But, as you know, every print publication with extensive internet operations has been scratching their heads trying to figure out how to monetize this.

T.B.: I know, but then you have to have some patience, and some vision. One of the reasons I wanted to be in this with Barry Diller is because he does, as he showed with the Fox Television Network [which Diller built from the bottom up]. He believes in this project, and he believes in this world. And he was very smart to get into it when he did. And there's no question in everybody's minds where it's all going. I must say, from my point of view, even if there was a transitional period when advertising is divided between mainstream media and new media, and a sense that clearly people are not sure how to monetize these things, there's no doubt in anybody's minds that online is the great growth advertising venue of the future. It may take some time to transition it, but you have to take the plunge at the right moment or you're left behind. So, from my point of view, what really excites me is that I've spent so much time in mainstream media, and just in the last seven, eight years, frankly, you get so tired of the sort of constant hammering. There's such a depression in the mainstream-media world, whether it's publishing or network television or magazines, and everybody's kind of glum, and feeling they're kind of being outpaced. It's all about budget cuts. From my point of view and our point of view here, it's exciting to be in a situation where you feel the only way to go is up, that it's about finding an audience fast, and catering to that audience fast. I love being able to adapt. Obviously the site will perform and do well in the areas where the readers and users tug us, you know? And I like being able to do that, because it means you can adapt very quickly and become commercial very quickly because you can get a sense of response.

L.G.: Have you started selling advertising?

T.B.: No, we haven't even gone to advertisers yet. This is a beta period. It means we've not really fully launched. We came out before the site was 100-percent baked as we might have done. I mean, we might've put in several more verticals and all the rest of it, but we decided not to wait for that, because we felt that this news moment was so good and such a great way to build audience in this news market, that it was better to get it out now and find our audience and gradually evolve as we went along. We'll start going into advertisers in early 2009. It was Barry's idea. Barry said to me, "Don't think about advertising until you've been through this period, because you're going to want to retool things, think about it, and then you'll be able to know where you're going and what your story is."

L.G.: Obviously there's been a great deal of buzz, but the traffic is understandably low. You just started, after all.

T.B.: But, hey, buzz equals traffic, as you well know, Lloyd.

L.G.: It's a steep upward curve since the start?

T.B.: We're very encouraged—very. We've been up for 10 days. So don't push us too hard, because I don't even know. Things at the beginning can say one thing—who knows? Talking about numbers, we don't know, we have no idea.

L.G.: You've been up for 10 days, but since you're Tina Brown, you've been getting a lot of attention for it.

T.B.: I'm completely worn out. It's like, "What are your metrics?" I'm thinking, If I had a minute to bloody check them, I could tell you.

L.G.: This, for you, is like a soft launch, isn't it. Maybe you can have a party in, like, a puddle somewhere, on a little traffic island, maybe.

T.B: Oh, I don't know, yeah, traffic island—that's a good idea.

L.G.: I was amused: In your own interview with yourself, you asked yourself whether you could bankrupt Barry Diller. And you said, "Even I can't burn through money that fast."

T.B.: It's true.

L.G.: Well that's very reassuring. You've had a number of good hits, as with our friend Christopher Buckley [whose endorsement of Barack Obama and subsequent resignation from National Review, the conservative magazine founded by his late father William F. Buckley Jr., received widespread coverage in the mainstream media].

T.B.: Yeah, that was like Christmas Day. Chris and I are really good friends. We agreed he was going to do a regular column a few months ago, and he said "I'm all yours once the Beast begins to roar." So up he goes with his first column, and it's great, and then I say, "Hey, what's the next column, Chris?" He says "I think I've got something that you're going to enjoy," and I said "Okay, great, we'll put it up on Monday." He said, "I have a funny feeling you might want to put it up right away," so of course as soon as it came in, we rammed it right in. Then the next thing is, he does the other one about the fact that he gets fired, and then of course it goes crazy. It's just been amazing. It's been a huge traffic driver. It's been picked up everywhere. Everywhere. It's amazing how it continues. It's one of the great fun things about the traffic metrics to be able to see. It's still driving. We published the piece whenever it was, and now I can see people are going back to the new piece about having left the National Review, but they're also then going to the other piece to see what he said in the first place. So it's been great for us.

L.G.: Have there been other things that have driven traffic to the Daily Beast?

T.B.: We've had a lot of good stuff, actually. Mike Kinsley's piece about McCain at the craps table got a huge amount of traffic.

L.G.: That was the one where McCain chewed out the old lady?

T.B.: Yep, that was great. We had a terrific Kevin Sessums' Jennifer Lopez piece that drove a lot of traffic. We had a wonderful piece where one of our interns got McCain's auntie on the telephone, [laughs] and she gave an exclusive interview to the Daily Beast about what she feels are the chances of her nephew—and that's been picked up everywhere today. I think frankly we're a very lively staff. As long as the ideas keep rolling, obviously people are interested in content, so it's the content that's driving the site, which is very nice for us. I think news is the best marketing budget. I mean, I'd rather have news than a marketing budget. If you have stories people want to read, that's the best way to market your site. It's much better than pictures, posters, and expensive advertising.

L.G.: Do you have a marketing budget?

T.B.: Not really, no.

L.G.: I think Tina Brown is the best marketing budget.

T.B.: God, I want to go to bed, Lloyd. I was up at 4 a.m. blogging [about the final presidential candidates' debate].

L.G.: I read that. That was very amusing.

T.B.: Thank you. I used to take two days to write a column for the Washington Post. Now I'm writing one in two-and-a-half hours. You're used to it. You've always been a kind of content monster, churning it out like a maniac.

L.G.: Okay, the flattery portion of the interview is over.

T.B.: It's true. I used to wonder about that, but now I know what can be done when you're in a frenetic state.

L.G.: Here's a question I'm curious about: Are you paying your writers?

T.B.: We pay professional writers.

L.G.: At market rates?

T.B.: Certainly at competitive Web rates. Listen, let's put it this way, if I ever hear the words, "he's at Condé Nast," I'd put down the telephone.

L.G.: [Laughs]

T.B.: Condé Nast only competes with itself at the moment. But there's a hell of a lot of writers out there who are floating around who are looking for places to publish things.

L.G.: Right, but a lot of the people that you have featured are your A-list, right?

T.B.: Those are people I have very good relationships with. It's wonderful. I feel very touched that some of the old friends have sort of come forth and multiplied. I think the thing about writers is, most of all, they like feedback and they like to be read. And in this competitive place for eyeballs right now, it's so hard to make an impact with something, you get so overwhelmed with others' competing material that I think when writers feel that there is a place where they can put their stuff and get a response, it's quite remarkable what type of material starts to come in. One of the things I'm freaked out about—and it's wonderful—is I wake up in the morning and there's something in my inbox from somebody that I didn't actually call, to say, "I just read this," "I just came back from so and so," "I just wrote this," you know. I woke up this morning, and now I had a post from Andrew Neil, former editor of the London Sunday Times, and he's started to be one of our bloggers on the British economy. And, quite frankly, he's got a ton of other things he could be doing.

L.G.: Arianna Huffington doesn't pay her writers, as you know—her bloggers particularly.

T.B.: Don't forget, Lloyd, it's a completely different model, because that's a come-one-come-all, multi sort of present site. We are commissioning and not just trying to publish every blog that comes in as a post. It's going through editors. It's not people posting without an editor, it's people writing for either a commission or a particular editor. We accept and we reject.

L.G.: Some people have written that yours is sort of a "voice of God" internet site.

T.B.: No, no, because there's still comments, an interactive nature of the site, there's a lot of free exchange. Let's put it this way, it's a much more free marketplace than a magazine where you have to kind of harbor your print pages. We want to cultivate our own voices, and as the site grows, there probably will be many voices. We really want, first of all, to establish a literary standard and a level of thought and conversation, which then in a sense becomes self-replenishing, with people who are attracted to the site because they're those kinds of writers and thinkers and people. And then you could establish a roster of people that you particularly love to hear from, and then they, in turn, attract others like them. So it's really, at this point, about establishing the tone and quality and standard of the site.

L.G.: There's always been a tension, on the internet and within various internet companies and journalistic enterprises, between democracy and editorial control. You are an editor, obviously.

T.B.: We are in between. We do feel that our service is to be discerning, so we're kind of in between a site that is really an edited, fully commissioned site and one that is wholly kind of user-generated. We have user-generated content, and we also do stuff about user-generated content, and we aggregate user-generated content. But we're not just looking to simply post everything in the world that's close to the door right now, because we're trying to say this is a site that will save you time, so we're only going to give you stuff that interests us.

L.G.: What about the notion that, as your old "friend" Michael Wolff—who I gather went to Barry and asked Barry if he would back his site [Newser.com]—.

T.B.: I didn't know that history.

L.G.: But he was saying that buzz doesn't get you the kind of traffic you want, that the businesses that make money are the ones that you don't hear all that much about.

T.B: I certainly think he's hoping for that.

L.G.: [Laughs]

T.B.: Listen, that's his story and he's sticking to it. What can I say?

L.G.: But even Arianna—

T.B.: Arianna makes a lot of buzz. That site has made itself on news. It's done great things and made a lot of news. That's why it's succeeded.

L.G.: She says, in the Los Angeles Times piece, which you probably saw, that "I agree with Michael that buzz is not something you plan for, and it should never be your goal. You should follow your heart, speak the truth, and work to connect with your readers."

T.B.: This is like the election: Is anybody anywhere telling you the truth?

L.G.: I hope you are!

T.B.: I am! You know what buzz is?

L.G.: I want you to define it for me.

T.B.: Buzz, contrary to what some people think, is not something you graft onto a site. Buzz is just another word for providing interesting things that people wish to talk about. That's buzz, and that's what an editor's job is, to provide material that is stimulating, provocative, and interesting enough to make people actually want to converse about it. So if we're generating buzz, it's because we're actually appealing to what makes people involved and interested.

L.G.: That word has been most associated with you.

T.B.: Yes, in the case of me, they tend to call me "the erstwhile queen of buzz." In fact, I now sign my letters, The Erstwhile Queen of Buzz.

L.G.: But it's a term that's used derisively.

T.B.: I know it's been used derisively by people who've never been able to create any.

L.G.: [Laughs] Very funny. What is your view of the climate for the media business. The economy seems to be heading into the dumpster. Wall Street is a horror show.

T.B.: It's pretty scary. It's scary, scary, scary.

L.G.: It's scary, and isn't it a crappy business environment to start up anything these days?

T.B.: But you know there's one kind of liberating thing about it—nobody's pretending to be doing well. So it's a kind of liberating climate for experiment and go-for-it [mentality]. So since nothing is working anywhere under the sun, you may as well play your best ideas. I mean, let the Darwinism begin!

L.G.: I think you're very much somewhere in the middle or perhaps the end stages of survival of the fittest here, aren't you?

T.B.: Survival of the fattest. Thanks a lot for that, by the way—am I really, it's unbelievable—I'm not that much of a dinosaur, for God's sake! I'm here writing my books and getting on with my life.

L.G.: Yeah, well you're the one who called yourself a dinosaur.

T.B.: True, but I'm going to keep going. My husband is still 25 years older than me, he gets up and blogs and swims 80 lengths, finishes his book, does a lecture, and gets on a plane and does a panel.

L.G.: That is truly frightening.

T.B.: It is pretty frightening. We have a lot of fun over our work. Actually, part of our thing is if you love your work, it's not work. We just love our work, we always have. I love our work, I love being creative, I love writing and editing, talking to creative people. It's not onerous, it's really fun.

L.G.: IAC is partly a media company, and there are all these media behemoths that have been having trouble. News Corp., Time Warner—

T.B.: I love what Rupert's done with the Wall Street Journal, by the way. I think it's great.

L.G.: Tell me why.

T.B.: I just think he's vigorously improved it. It's often my first read these days. I think he's put muscle into it, flair and focus. I just think the paper is terrific. I think they've superbly covered the crisis. In a way, just as Gordon Brown has certainly had his moment as prime minister because he was chancellor of the exchequer, what could be more of a gift to the Wall Street Journal than the gift of every single company they cover in trouble. You know, it's like they were put on this earth to be in this crisis. And Rupert, being, as usual, devilish in his sense of the zeitgeist, is exploiting it to the max.

L.G.: Right, but one of the companies that's having a tough time in this environment generally is News Corp.

T.B.: Oh, I know. This is what I like about him as a business guy, as a matter of fact. He's got a long vision, he's been through bad times before. Don't forget, he was brought at one point not that long ago to the kind of brink of financial peril, 10 years ago or whatever it was, and they came out of that.

L.G.: Leveraged to the hilt, trying to get the banks to renegotiate with him.

T.B.: He's used to that, and I think he will have the nerve for it. I'm not concerned about him. In some ways, if you had to pick a company to be worried about, it would not be News Corp.

L.G.: Which companies would you be worried about?

T.B.: Listen, I don't want to start naming them—

L.G.: Oh, please, just name a few.

T.B.: No, I'm not going to do that. There are a lot of companies who have lived high on the hog, lived on their fat and so forth, and just aren't as nimble, and I think there's going to be a time when nimbleness will have to prevail.

L.G.: You're talking about media companies—there are only a few.

T.B.: Yeah, I think all kinds of companies. I'm going to have to wrap it up, one more question just because I have a little line outside here.

L.G.: Oh, you have a line outside your office. You've had a television show, you've edited four magazines, you're writing books, now you have an internet operation. Is there anything you've learned from all that?

T.B.: I've found that all the different things that I've done—editing magazines, TV show, writing a book, having a column—have really enabled me to kind of adapt happily to the Web. I do feel very happy about what we're doing, much happier than I thought I would be. I didn't think I would like online editing, but it's just proving to be something that I really have taken to. I'm not saying whether other people like it, but I certainly like it just because it's good for my metabolism. I'm the single-most-impatient person in the world, and now I can literally have an idea, dispatch an email, somebody writes something, it comes back, I choose a picture, and I put it up. I just think it's fun. I think doing a TV show helped to speed my metabolism. I also think doing TV really taught me a great deal about being concise and being punchy. And I came out of doing long-form magazine work for the New Yorker, which is such a different rhythm and speed, and then I had to kind of speed up faster and faster, which has turned out to be good training in a way for this new, highly caffeinated moment in media.

L.G.: So you've sped everything up?

T.B.: I mean, I woke up in the morning and I saw the news about Madonna, who was getting a divorce, I emailed Andrew Morton. And I think that's lucky in a sense for this project that there's a lot of writers that I've known over the years. And I emailed Andrew, and I just said, "you've written a book on Madonna, the interesting angle about this to me is that it will mean her English idyll is over." He wrote back to me and said "I love the great angle, it'll be with you in a few hours." He types it, sends it in, and a few hours later, we have a piece ready to post. And that's very exciting, really. It's great. It's a good piece, he's a smart guy, and I love that. I must say, it's very gratifying.

L.G.: Are you going to stick with the size you are now?

T.B.: You know something, it all depends on how fast we grow. I don't feel the need to kind of hire up like crazy. In this media climate, there's a lot to be said for virtual-editing situations. We have actually one freelance editor in Washington. It's a terrific thing to have her there, because she's out of the craziness of the hour-by-hour, and she can work on the slightly longer pieces that are going to be slightly more long form, more in the distance. And I think there's a great situation where you're going to have some freelance people, and you can capitalize on some of the people who want to work at home or people [who are] in-between jobs. It's great. I actually enjoy the spontaneous kind of bringing people in for periods, seeing how they like it, how it works. It's a good way to develop exactly the right team. You're not wedded in stone to the kind of structures that you've put in place.

L.G.: And is Barry pretty much giving you air to breathe and space to work?

T.B: He's given us a very free range. He comes down to visit us every so often, chats away, gives us his input, always smart, and that's it. And we all love seeing him when he comes down.

L.G.: Do you ever find yourself saying to him, "Up to a point, Lord Copper"?

T.B.: [Laughs] I think that Barry likes combat actually.

L.G.: I've heard. You haven't had any screaming matches with him yet?

T.B.: No, not at all. I mean the thing about Barry is that he enjoys vigorous conversation. No, we have a great mutual respect. I love his input, and he understands that I'm an editor, and we do what needs to be done.

Billy Mays

Thu, 09 Oct 2008 04:00:00 GMT

The economy might be tanking, and Wall Street is on the brink of hysteria, but none of that dampens the enthusiasm—that is, the crazed, rabid, evangelical fervor—of television pitchman Billy Mays.

And why should it? The bearded, barrel-chested Mays (whose mantra could be A.B.P., as in "Always Be Pitching!") has gotten rich from his only-in-America career as an inescapable presence on broadcast and cable. Part confidence man, part carnival barker, he is shouting in every media market in the United States, to say nothing of 57 countries around the world, hawking household products ranging from Mighty Putty (a gloppy adhesive) to Samurai Shark (a knife-sharpening tool). It's no wonder that the 50-year-old Mays will soon be starring in his own reality show, Pitchmen, now in production for the Discovery Channel.

In an exclusive interview with Portfolio.com, Mays argues that the possibly approaching recession is even good for his business (already a $150 billion industry by some estimates), encouraging cash-strapped Americans to choose cheap do-it-yourself fixes at home instead of hiring professionals, and repairing smashed crockery instead of buying anew.

Lloyd Grove: You obviously made it back from New Jersey okay.

Billy Mays: Barely. I had a little complication, but I'm hurting a little bit. I don't know what happened, but I'll see the doctor on Thursday.

L.G.: What did you hurt—your hip?

B.M.: The hip is fine. It's just the muscles around it—they go on guard. Doing a lot of walking on it, they get real spasmed up around my butt and my front and my pelvis, my thigh. Just got off the phone with the doctor. He said that's your natural defenses when you push it—you know, I was walking through the airport a lot, had a long day of shooting. But I think it's fine, I just feel it's muscle pain, which is fine. Just going to a little rehab the next couple days, then see him on Thursday.

L.G.: It would be nice for somebody to come up with a product for guys our age—my back has been killing me—and then you can get on television and pitch it.

B.M.: I would love to do that.

L.G.: I noticed that in 2004, articles about the infomercial industry said that it was about $150 billion of products sold through infomercials. Do you have any sense of what the scope of it is today?

B.M.: I really don't keep on the actual number, but if that number's right, Lloyd, it's certainly increased. I think the business has been legitimized. A lot of people still have their doubts about it, but let's face it, everything that comes out of my mouth has to be approved. We have to have documentation. Every demo [demonstration] has to work, and so there's a lot of legal work going into it. I think the numbers really don't lie. Talk about the infomercial, you're talking about everything from Chuck Norris to all the health-care stuff, all the beauty care, beauty lines, I mean, geez, we're talking about scooters, hub-arounds, they've all gone D.R. [direct response]. We have insurance now, ICanBenefit.com, which has been massive for me—you know, getting people affordable health insurance. Reverse mortgages. Premiere bathtubs. So that all falls under the spectrum of infomercials.

L.G.: Do you think there are some products that just can't be effectively sold via infomercial or can you sell pretty much any product?

B.M.: Well, first of all, if there's a need for it. There's a couple different ways to skin a cat there: Either it's going to be $10, $15, $20 on the two-minute spots, short form, or you're going to have an offer at the end where people are going to call in. Then you have 15 to 30 seconds that I do with OxiClean and Kaboom, which were already branded and in the stores. So they're image spots, and we drive them right to retail. And then you have the half-hour infomercial, which will actually give you a lot more time to ask for a lot more money. I feel that the magic number on the infomercial, the two-minute spots, it's kind of hard to get past $20. That seems to be the magic number. Or $19.95. The best things in life are free and $19.95. [Chuckles.]

So there's a lot of free offers out there, try it for free. David Oreck has done a fantastic job as far as his vacuum cleaners, you know. He's built an empire, and it's built on trust. I don't know him personally, but I've read about him and I like how he approaches the infomercial. "Try the product and if you're not 100 percent satisfied, send it back, and we'll not only ship it to you for free but we'll pay to have it shipped back for free, so you have nothing to lose." There's some really compelling stories out there. Of course, all the products I sell have a "Billy-back" guarantee, a money-back guarantee.

L.G.: But not shipping?

B.M.: Some of them, the $10 ones, the $20 ones, a few of them, we do. But especially with the presidential campaign and the Olympics, advertising time is such a high premium right now, that it's almost impossible to ship it to you and have you ship it back for free. Oreck will not only ship it to you free, he'll ship it back to you free. He has a bigger markup, he's at $300 to $400.

L.G.: ICanBenefit.com—is that the most expensive product you're currently pitching?

B.M.: ICanBenefit.com, it's a different type of show. It's one to two minutes—I don't know if you've seen it. Basically it's, Hi, Billy Mays here, to share with you the most important product I've ever endorsed, affordable health insurance for everyone. If you're one of the 47 million uninsured, we can help.

L.G.: I assume that you've ratcheted back to save your voice. But you don't pitch that product with any less intensity that you pitch other products, do you?

B.M.: Oh no, my voice is a little sore right now from yesterday. [Louder, more rabid] Hi, Billy Mays here to share with you the most important product I've ever endorsed! And I'll even be a couple notches up from that.

L.G.: Sign me up, man!

B.M.: [Laughs.] Health insurance is such a hot button in the election, we're signing people up every day. It's a legitimate company—you can get major med, mini med, we cater it to your needs for hospital visits, blood tests, checkups, emergency room, you can spend as little as $159 a month for you or $269 a month for your entire family. Now, if you want to get into the Blue Cross Blue Shield, that type of program, of course it's going to cost you a little bit more. But the main thing is to have some type of coverage for catastrophic and things like that. From that forum, we're going to eventually take it to auto insurance. We're going to take it basically as an association. The commercial is kind of not deceiving, but when you actually call in and get signed up for a month, the first month, you get a package that gives you roadside assistance from Allstate—identity theft, legal advice, you get so much off toward that. There's a whole array of things that we offer you in this—how to improve your credit score, counseling, consulting.

L.G.: With the Billy Mays business model, do you pretty much participate in all the products that you're pitching?

B.M.: Oh, absolutely.

L.G.: So you're really part of these companies, it's not like you're some kind of gun for hire. From what I've read, you take an up-front fee of 20 grand for doing the commercials, and then you have participation, commissions?

B.M.: Yeah, there's some certainty up front, and 20 is a number that got thrown around. I mean, more or less. But it's about the back end, it's about getting a percentage. If it came down to it, I would rather just have the percentage, because I don't do the products to get that $20,000 or whatever it may be up front. These are businesses of mine that I want to brand. I have at least 10 campaigns running in alternation right now.

L.G.: Are you in every media market in the United States?

B.M.: Every media market, yes.

L.G.: And are you also beyond the United States?

B.M.: Worldwide, I speak 57 languages.

L.G.: Oh, you do not!

B.M.: Yeah, they dub it in.

L.G.: So do they have some guy in Japanese screaming? Have you heard those commercials? Do they capture your spirit?

B.M.: Some of them do. They're getting better. A lot of the Spanish and Mexican markets, I'm really strong in. I was just in the Chicago airport the other day, and a guy sitting next to me, he says "I can't get away from you, you are the biggest celebrity in Spain. Your Orange Glo commercial runs every 10 to 15 minutes on every other channel."

L.G.: Do you speak any foreign languages yourself?

B.M.: Hablo español poquito. No. I did a couple of spots with Simonizer where they let me do part of it, writing out the dialect of it so that I can actually pronounce it, "Oy me, I'm Billy Mays," then I'd say something, then we have a voiceover coming in, then I got "solamente veinte dolares" at the end—and that goes a long way to the Spanish and Mexican market. You know, butcher their language a little bit—they respect it. I started in the state fair's home shows, flea markets in L.A. I started on the boardwalk in Atlantic City. I used to sell a salsa maker in places in L.A. when I was out there, and nobody spoke English. I just would make salsa and sell it: tomate, pimiento, chile rojo, ajo and the garlic, limón and sal, pico de gallo, and then I'd make it. Eat! Eat! Then get it on TV. Boom! Solamente veinte dolares! And they just take money all day long. Someone in the crowd always spoke some type of English, but I would be the heart of it.

L.G.: What makes a good pitchman?

B.M.: I've been doing this on TV almost 11 years and I've never changed. I think it's the consistency. You've got to stay true to what you do, you've got to really be humble and you've got to believe in the products you sell, you really do. Product is king, product is king. I turn down more products than you can imagine, I don't even look at them.

L.G.: Give me an example of some of the products that have come over the transom that you thought were not right for you.

B.M.: Um, geez. One was a propane caddy.

L.G.: What is a propane caddy?

B.M.: To carry your propane on a little wheel—which I thought was just kind of not D.R., direct response. Another was a siphon, or an anti-siphon, so that you can stop people from siphoning gas, because it's a big thing now with the price of gas. I think things like that—the grill tamer.

L.G.: What does the grill tamer do?

B.M.: It keeps the grill open a certain length or a certain area so that you can get the smoke to come out and so you don't burn your food. And it adjusts, has different gauges on it. The guy invented it from a beer can, just smashed a beer can.

L.G.: But you passed on that.

B.M.: Yeah, he got really sophisticated about it, he's made it nice-looking—it's made out of high quality material and you know, "40 million grills, 40 million people that own grills!"—that was his pitch.

L.G.: Why did you pass on that? Why do you pass on something?

B.M.: I have a checklist. It has to have mass appeal. When you have 40 million grills out there, he thinks that he's going to sell 15 million. First of all, you don't sell 15 million of something. I've sold that much of OxiClean. That's different because that's ongoing. Mighty Putty is way up there. That's one of my biggest products, and of course OxiClean is a standard that everything is set by. And Kaboom. The company was sold to Arm & Hammer. I started with OxiClean, or Orange Glo International, which is a family company. And it was sold for $325 million.

L.G.: And you were one of the lucky stockholders?

B.M.: No, I wasn't. I wasn't even involved in anything. It made me, Lloyd, such a strong pitchman after that. I worked for OxiClean, and Orange Glo, I worked with them four, five, six times a year, shooting commercials. It made a stronger pitchman.

L.G.: In other words, everybody would know you as the guy who insured the success of OxiClean, so you were the go-to guy for that kind of thing?

B.M.: Yeah, and I felt that I built all three brands—also Kaboom and Orange Glo. [Not profiting from the sale] was a hard thing to swallow but I used that. I think that he [Max Appel, the head of Orange Glo] would probably have done things differently but it's not too late, it's only been a couple years. I felt that I should have got something. Look, I believe things happen for a reason, I'm a much more successful pitchman. People say that I have more hits on TV than anyone. I like it that way. I don't want to be handed this and handed that.

L.G.: And it's not like you're living on a grate here. And even though you drive a Rolls-Royce or whatever it is, you manage to keep your feet on the ground?

B.M.: Right, it's a Bentley.

L.G.: Like James Bond.

B.M.: [Laughs.] I enjoy what I do. I think it's just beginning. I'm going to go and take this to another level, and really legitimize the business that we're in, not that it needs legitimization. But there are skeptics out there that are still a little leery about "As Seen on TV," even though we're regulated so much.

L.G.: You're regulated by what?

B.M.: The F.T.C. [Federal Trade Commission]. We're very regulated. You better have the claims backed up and if they call you on them, and that demo is not actually documented, you're in trouble. A lot of trouble.

L.G.: You're not facing jail time if you try and fool the people, but it's a civil penalty, right?

B.M.: Yeah. I'm the frontman, I'm the quarterback, I have a good relationship with everyone I work with. I know that their priorities are to be clean about it, and that's important. I won't work with some of the ones that are a little leery. There are a few out there. I think in every business, there is.

L.G.: Right, well there's a tradition that goes back to the medicine shows, obviously. But they didn't have an F.T.C. then.

B.M.: Oh no, you could pretty much get on TV and say anything you wanted. But now we're really carefully watched.

L.G.: Do you write your own copy?

B.M.: Pretty much. I'll tweak it, I'll buy a vowel. So yesterday, we did five 15-second commercials for OxiClean at Blue Moon Studios in New Jersey, and started off with Pat Benatar saying, "Hit me with your best shot," then I come in, "Billy Mays here! OxiClean has four-in-one power to tackle your toughest stains, the toughest laundry stains there are. So why not hit me with your best shot?" So we're really looking forward to that one.

L.G.: How many commercials for which products do you have in rotation right now? Is it too much of a memory trick to get you to list them?

B.M.: No, not at all. OxiClean foremost, Kaboom, Orange Glo wood-floor polish, the Mighty Putty, Mighty Mend-It, another line extension of that, it's more of the glue, which you'll be seeing a lot here in the next couple weeks. HandySwitch, Simoniz Fix It, which is a scratch remover, Zorbeez, which is the shimmies. Hercules Hook, which is kind of off the air, but we bring it on if there's time available just to drive the retail a little bit, where they split the revenues with us. Now Steam Buddy is a big one, the steam iron, which is very big for us. And then there's the Samurai Shark knife sharpener.

L.G.: So all those kinds of products are in the $19.95 range or less and your high-end product is ICanBenefit.com. Since we're in the middle of a presidential campaign, I have to ask, would it be possible to use you as a pitchman for a presidential campaign?

B.M.: Well, Chuck Norris does.

L.G.: Right, he did for Mike Huckabee, but that was more sort of a humorous thing, I suppose. A lot of the fundraising is done on the internet, in small increments—indeed, in many cases in $19.95 increments. Could you see a situation where you're selling Barack Obama or John McCain in that way, or is that just too nutty?

B.M.: I think if I was approached by the McCain camp. I'm a Republican.

L.G.: Maybe this is unfair to ask, but how would you pitch John McCain? Would you say, "Billy Mays here for John McCain?"

B.M.: Security. The world's a safer place. Country first. "Billy Mays for John McCain! If you want to keep you and your family safe, vote McCain!" I'd have to think about it, I wouldn't like to bash anything. I'd like to keep things positive.

L.G.: Of course in the case of a political candidate, you wouldn't have to worry about legal and vetting and whether or not what you said was true.

B.M.: Yeah, you're right. You know, the campaign is going to get really dirty here soon. Not that it already isn't, but it's going to get dirtier.

L.G.: What would be the solution to that? Would that be OxiClean?

B.M.: Yeah, we're going to clean up both these candidates' acts.

L.G.: Put them in a bucket full of activated water and OxiClean?

B.M.: That's right, the world's a much cleaner place because of it. You know, one thing I like to say, I owe it to the pitchmen from Atlantic City who taught me and kind of vetted me. They didn't have to do that. These guys saw something in me and I hung in there in Atlantic City, and they gave me little snippets here and there to apply, and I hung in there, hung in there, and they kind of just passed the baton to me and said, "Look, kid, take this to the next level." I'm a pitchman, my business comes from the pitch, nothing else. My voice, my likeness, is my livelihood. That's it. I keep it simple. I pick good products. The reality show coming up on Discovery is going to take us to another level.

L.G.: Let me ask you a question before we talk about that. What is the Billy Mays brand? What are you selling?

B.M.: Trust. And I'll stop the channel surfers, get a lot of people saying, "He annoys me," he does this and that—but some of those people are the first to buy. And people have bought so many different products off me that they trust I'm going to give them a quality product. My style is my style. I may offend a few people, my over-the-top-ness sometimes, but if it's not broken don't fix it. They look at me as the average Joe. I'm going to sit down, talk with them, have a beer, nothing real special. I'm myself and I have a good time living life. I have a 3-year-old and a 22-year-old.

L.G.: Does your wife like your beard?

B.M.: Oh yeah.

L.G.: Because you can never shave it, can you?

B.M.: No.

L.G.: You're 50 years old. Do you have to make sure you don't go gray?

B.M.: Yeah, I touch it up here and there. My beard is part of that image, and I think that people wouldn't recognize me without a beard. Sometimes they don't recognize me, they think they know who I am, but—"I know you, I just know you."

L.G.: You get a lot of that?

B.M.: Sometimes, like on the flight from Newark yesterday, I must've signed 20 autographs on the plane, from all the flight attendants, a couple of the guys, a couple of the kids sitting behind me.

L.G.: Now what happens if somebody for whatever reason is dissatisfied with a product they bought because they saw you pitching it on television? Do you get people who come to you and very bitterly complain?

B.M.: I'll either call the company or I'll just out of my own personal money send them a refund. Just recently I got a letter from a guy who's in the Air Force and bought the Awesome Auger—that's another big product I have. That's the one where you hook up to a drill and you plant bulbs by the dozen. It's kind of a cultivator, you can till, cultivate, with attachments to hook up to your drill.

L.G.: The Air Force guy bought it, didn't like it?

B.M.: He got two attachments the same, and he couldn't use it in there properly and he had some trouble with the customer service. He wrote me a letter and I immediately took care of it. He was out something like $72, because he brought the drill and he bought everything. He bought the maximum of what you can get.

L.G.: Did you send him a personal check?

B.M.: Yeah, I sent him a personal check, a company check, but I apologized. He said "I've bought products off you in the past, and with a lot of success, and now I'm a little deterred to buy it again, I'm a little disappointed." So I sent him his money with a letter saying, "I hope that you'll give us another chance, here's a reimbursement on that, stay with me and we'll see this won't happen again." Then he wrote me a letter back, and he was stunned. He was like, You've got to be kidding me!

L.G.: That's hilarious.

B.M.: When I used to work full-time with OxiClean, I used to go to the naval base at Pearl Harbor, where they had the biggest mall in the world. I had a reception there, where people were waiting for me to sign autographs and come in with Kaboom and OxiClean and they get the best price in the world. It must've been hundreds and hundreds of people, and I kid you not that I gave them a pitch that was almost ridiculous. "Send in the marines! Kaboom! And the stain is gone! Let's use this on all the enemies, including the dirt!" Probably within a half hour I sold everything out. It was just hundreds and hundreds of people just loading up, in between signing autographs. People appreciate the military. I'm having a little rough time trying to get over to Iraq. I would love to do that somehow. I think it would be nice because I've heard too many times that OxiClean, the little sample packets they get, they use out in the field to clean their clothes. So I would love to go over there with a couple hundred thousand little packets, thank them, hand them all out, you know, have it be part of their kit because they deserve it. That's something I really want to do. I don't know if it's going to happen.

L.G.: Well, maybe somebody from the U.S.O. or the Pentagon will see this and follow up. Let me ask you, without in any sense prying into your own different contractual arrangements with these various companies, do you have a sense of the aggregate volume of all the products you're involved with and pushing?

B.M.: Well, look, we sell millions. Ten million units for Mighty Putty right now. On TV it's $20. Most of it is sold in retail, like 8 million to 10 million, something like that, I’m just kind of guestimating. In the past 11 years, all the products together, as far as gross sales, it's well over a billion dollars. OxiClean is one thing—I don't get paid on a commission there, I get paid on a very handsome retainer. But OxiClean for years and years, doing $300 million to $400 million a year. I have smaller companies that do $30 million to $40 million.

L.G.: With the economy slowing down and by some lights going into recession, has that had any impact on your business?

B.M.: Well, somewhat. I feel that with Mighty Putty and some of the products that we sell on TV, people want a good value. I'm getting more involved in pushing value, value, value. Let's just say the reason Mighty Putty has done so well is that people go out and buy it instead of paying a plumber, $60, $80, $100 to fix a leak or whatever.

L.G.: And that's the thing that's green and you cut it and knead it and it turns white?

B.M.: Yeah, and it's ready to hold on tight…I think, the bottom line is that people are now spending a little more money at home, not going out, with the price of gas. They may have to pay the shipping, but they'll stay at home, order it off TV. A lot of people would like to be the first to order it off TV.

L.G.: So, interesting, you think that because people have less disposable money to spend on plumbers and whereas before they might've just thrown stuff out, they're more interested in keeping things, repairing them and stuff like that?

B.M.: Absolutely.

L.G.: So tell me about the reality show, how did that come about?

B.M.: Well, you know Anthony Sullivan—the Swivel Sweeper? English guy. He used to live next door to me. He's from Petticoat Lane over in England, while I came from Atlantic City, the boardwalk, two worlds, and our paths crossed on the road and we ended up shooting some commercials together. I was a pitchman for OxiClean, he did a lot of the production, he went his way a little bit, we do work a lot together, we work separately, he does different things. We had a guy come in from L.A. Chris Wilson is actually from HSN, we worked with him as a producer.

L.G.: That's Barry Diller's outfit, HSN.

B.M.: Oh yeah, that was the Billy Mays network at one time. They'd call me and say, "Get on there, kid, and sell! Have you had a few?" "I'm fine, get the stuff ready, I can get in there." I made it a point to be on call 24/7. But Chris Wilson just flew in and said, "I just think there's something there—Pitchmen!" The name of the show is Pitchmen, and we were going to go with Warner Horizon. They flew in—the hokeyness, I didn't really like the direction they were going. Sully by chance met Thom Beers, who's the owner of Original Productions, at some type of retreat, just to get away, where you go in there, eat right, and hike. You know, a place where you go and get your mind and body cleansed out. So they start talking a little bit and he says, "I know who you are." Sully says, "I have a reality teaser." Thom took it to Discovery, and right now they're inking the deal.

L.G.: When does it start filming, in a couple of weeks?

B.M.: Yeah, we're going to start [filming], which is probably going to be in Vegas in a few weeks. But Discovery likes to kind of do the P.R. about it.

L.G.: Well I've seen it described as just walking the viewer through how a pitch is put together, from start to finish.

B.M.: Right, and it's going to be behind the scenes, it's going to be about getting to know the people who do this, like me, Sullly, and my 22-year-old son will probably be in it.

L.G.: What's his name?

B.M.: Billy Mays III.

L.G.: He must thank you for that—and you have a small child as well?

B.M.: Elizabeth, she's turning 3, and my wife's Deborah.

L.G.: So Deborah will be in the show rolling her eyes every so often?

B.M.: She's fine with it. I would prefer if my daughter made a cameo once in a while but I'm not real excited about showing her to the world.

L.G.: Since you have become a celebrity through this business, have you experienced some of the wacko side of life?

B.M.: Yeah, a little bit. I'm pretty fortunate that, you know, I have a lot of kids that watch. It's really strange, my demographic runs from really young to really old.

L.G.: I would've thought that a large component of your customers or potential customers are derisively described as shut-ins who are watching television a lot.

B.M.: Right, but I have a lot of kids that will be sometimes the first to recognize me, like 4- or 5-year-olds. "He's on! He's on!" We run a lot on Noggin and Sprout and Nickelodeon, OxiClean and Kaboom. I've been very fortunate as far as people don't give me a hard time. If they don't like me, everybody has their opinion, they just kind of leave me alone. I had a drunk guy once I can remember, "Your products don't work!" What I do, Lloyd, I take the time. Like on the plane yesterday. I find out everybody's name, I write them an autograph, "How are you?" I really take the time and ask, What are you doing? Where do you live? Where you from? I think that’s important. I don’t want to get this big ego. There's Tony Little down here. He’s a nice guy. There's Body by Jake, and Ron Popeil—he's not very friendly. Ron won't give you a business card. I like Ron. At shows or whatever, he'll take the time to say hi to me and not too many other people. I used to work with his family in Atlantic City so we came from the same background.

L.G.: How long do you see yourself doing this? Ron Popeil is in his 70s, isn't he? And he's still doing it.

B.M.: He's not really doing that much. Since I turned 50, I am really taking measure of my life and really reflecting, and my motto is, because I ran the road so heavy and hard over the years with state fairs and home shows, "I don't want to age 10 years in five but I want to work 10 years' worth in the next five years." I want to notch up a schedule that's really just non-stop because I have the new hips. I had a surgery in January, and then it wasn't healing right. I went to Greece and Italy and I fell. I kept having some problems, so did an emergency surgery when I got back in July.

L.G.: Did you bang yourself up playing football?

B.M.: Yeah, football, played a little semi-pro, played at West Virginia, high school ball. From January to July, I had a staph infection, and didn't even know it. I'm so fortunate that I didn't lose my leg and I'm not dead.

L.G.: Oh my God. Did I mention my back hurts? How pathetic are we, two old guys talking about our pain?

B.M.: You know, it's really good now, a friend of mine sells the inversion table. That's amazing. You hang upside down. I've used that for years. You can go online, the Teeter Hang Ups. His name is Roger Teeter. I bought a reconditioned one. It's pretty much brand new. They're a little pricey, it was $200-something a couple years ago. I got my dad one, and man, what a difference. I mean, you get your posture back and it really stretches out your back!

Jeffrey Bewkes

Tue, 16 Sep 2008 19:30:00 GMT

Nearly nine months into his gestational period as chief executive of Time Warner, company loyalist Jeffrey Bewkes is hoping to deliver a media behemoth reborn. The 56-year-old Bewkes—a three-decade veteran who started out at the fledgling HBO (which he eventually steered to critical raves and record profits) and next year will add chairman to his title—has the task of fixing a company that still suffers from its legendarily disastrous merger with AOL.

This week he's on a public campaign to accentuate the positive. Bewkes is trying to convince skeptics on Wall Street—who have kept Time Warner's battered stock price flattened at around $14, even worse than the already-anemic valuation that greeted Bewkes when he took the top job—that he's taking the bold steps necessary to turn things around at the world's biggest media conglomerate.

On Monday afternoon, as the Dow Jones plunged more than 500 points, Bewkes gave an exclusive interview to Portfolio.com, explaining his moves of the last eight months—splitting off Time Warner Cable into a separate distribution company, acquiring the social network Bebo for a whopping $850 million, shutting down New Line Cinema, and reducing corporate overhead, among other things—and outlining his vision of Time Warner's bright future as the world's leading media and entertainment supplier.

Lloyd Grove: So, you having fun yet?

Jeffrey Bewkes: Yeah. Are you going to write descriptive stuff so I have to convey—"Yes!"—extreme exuberance? I want to be respectful of the financial community today.

L.G.: [Laughs] Actually, one of my questions was, Lehman Brothers downgraded you [Time Warner stock] in July—is this a warning?

J.B.: They downgraded everybody, I think.

L.G.: I do want to ask you, given that the important financial institutions seem to be in meltdown, with all kinds of implications on the rest of the economy, how much exposure does Time Warner have in all of this?

J.B.: I think it's a good place to start. You know, I don't want to say that the media business isn't connected to what happens in the economy, because everything is connected in the economy. But in relative terms, the media business, and maybe our company particularly in the media business, is less subject to the cyclical downturns than many consumer businesses. And the reason is, if you look at Time Warner, the ongoing core content company, which I think we'll talk about—networks, film production, publishing titles, internet ad-supported services at AOL, and subscription at AOL—basically Time Warner without the cable distribution, and we could talk about that too—the cable business happens to be going into a separate place. But even the cable business is historically, relatively, not affected by economic downturns. So that's true for them too. But in Time Warner, the remaining company, the core company, we have about 40 percent of the business in content and sales of movies, TV shows, we have about 30 percent in subscriptions, and about 25 percent in advertising. And, the first two, the content sales and the subscription levels, are not adversely affected by the downturn—so the first two are not sensitive. Many years of normal economic slowdowns have actually been countercyclical, where going to the movies, keeping your cable subscription, and so forth has seemed like a relatively more efficient and more important purchase for consumers. They've actually benefited.

L.G.: Well, not to make any invidious comparisons to 1929, but wasn't that the case with Hollywood during the Great Depression?

J.B.: In the '30s, yes. And so it's true for movie tickets; it's certainly true for cable subscriptions, magazine subscriptions. So essentially the content sales and the subscription part don't see much harm from economic slowdowns. The third part, advertising, does see pressure on it, but not in all of our businesses. And the strong part of our advertising business is the Turner Cable Networks—which have had, and right now still have, very strong ad growth, double-digit ad revenue growth, and they've also got a fair component at Turner of what they do that isn't advertising—subscription fees for cable operators and satellite operators—that's pretty strong and steady at HBO and Turner. So the part of our company—Time Warner as a media company, 25 percent of it being ads—a good chunk of that being Turner's cable ads, which are very strong. We have a fairly small part of our business at essentially Time Inc., a publishing company, where the ads are actually down.

L.G.: Revenue is actually down.

J.B.: Yes, and at AOL it's a mixed bag. There are some parts of AOL ads that are growing quite strong. Search is in the midrange, third-party ad growth, display ads—which is in the main portal—are flat basically, flat to slightly down.

L.G.: After several quarters of 40 percent growth, you're now at 2 percent growth at AOL.

J.B.: So there's been disappointing growth in ads at AOL this year, and we're saying that the ad growth for the second half at AOL, which we thought would improve—we don't have this ability now to say that it will. Now the good news underneath that is the traffic, the users of AOL, the number of people, the amount of time they spend, the kind of ratings, if you look at it in television terms, are good signs of health. Because the reprogramming of all the program categories at AOL had very strong growth in usage, growth in page views, so the traffic is up.

L.G.: I suppose this would be as good a time as any to ask you about Bebo. You suggested in the recent past that you may have overpaid for it: $850 million. How are you going to monetize that?

J.B.: Well, we're going to monetize, as we said, by linking Bebo to our community assets—which is AIM and ICQ. Bebo is undergoing some upcoming transformations itself—where we think it can become a leading, maybe the leading, social media network. When you look at Facebook and MySpace—what are they, social networks? Bebo is a thing where you can do social networking, but we think Bebo has more powerful tools for you to interact not just in social-networking terms but also with social media, so you can use copyrighted media and look at copyrighted media easily or user-generated media with your group of friends and do it all inside a very easy-to-use Bebo application. So as the ability of the performance ad networks like our Ad.com, Platform A, become better at monetizing social networks—which has been the big subject at Facebook, at MySpace, and at Bebo, how do you monetize it? Then we think that, a) social networking inventory can be more monetizable than is currently believed, and proved, but b), because if you go and look at the way Bebo users use it, they look at more media, visual media, movies, films, TV, user-generated content. They do more of it than is done on Facebook or MySpace, which means that if you're lining up ad support from advertisers, it's closer to an environment that they usually place ads on. If you're talking to users and you're trying to figure out, is an advertisement a commercial message on Bebo as welcome, as impactful, or more so than what it would be in the middle of a MySpace or Facebook interaction? We think more so, because you're more used to, as a user, seeing relevant commercial messages if they're put in the right context to what you're doing if you're looking with a friend at media. Whereas you would not be used to, or welcome, a message that's coming in when you're in the middle of just a stray conversation with someone.

L.G.: What's your timetable to see whether or not this is true?

J.B.: A year or two.

L.G.: And if you had to do it all over again—not to harp on this, but just to get your answer—would you pay $850 million for Bebo?

J.B.: Maybe. I'll tell you why I can't give you an answer. Because when you're doing an acquisition in an auction, the core purpose of the auction is to try to get as much buyer and competing interest. When you look back at it, you then have to reveal—which I can't to you—what I know about the other bidders. And you learn more of it after than before. The reason we said—when we kept being pressed by people, when they said "did you overpay or not?" we said we don't know—is if our plans work out, we did not overpay. But then somebody says it's compared to what you could've paid. If our plans work out less well than we thought, we would have overpaid by a few hundred million dollars. I'm not sitting here now—I don't know if that's the case—under a high case, we've actually made a lot of money on it. So it's really too early to say. It's kind of like saying, did Google overpay for YouTube? What was that number—$1.6 billion? They haven't monetized that yet. Actually, MySpace hasn't either. Now News Corp. paid $580 million.

L.G.: You've been in this job eight and a half months.

J.B.: Let's make it eight. I took a week off.

L.G.: You have done pretty much everything that people have been clamoring for you to do. You've spun off cable, you're splitting the dial-up access from the portal at AOL—

J.B.: We've consolidated the film company—they were not clamoring for that.

L.G.: You're putting all your corporate jets on eBay? No, you're not. But you've decreased overhead by what, $50 million so far?

J.B.: No, more.

L.G.: Why isn't Wall Street saying, "this is change we can believe in"?

J.B.: Well, they are, because if you look at the stock value of Time Warner in the last eight months—which, granted, here it is today, everything is down—but if you look any time in the last week, let's say, we've been somewhere between flat to down. At one point we were up 5 percent, but we've been kind of flat, give or take 5 percent. Where are we now? Minus 5 to 10? Eleven to 12 percent—something like that.

L.G.: But I notice you've said you've outperformed every media company but Disney.

J.B.: Right. Here are some companies down 30 to 40 percent. And Disney's up 3 percent.

L.G.: They're not being dragged down by "the worst business deal in history." [The 2000 Time Warner merger with America Online, which, by some estimates, vaporized $125 billion in shareholders' equity.]

J.B.: There's another point on that, but the media business has, on average, been devalued down quite a bit more than we have during this period. And the overall S&P is down probably 20 percent now. So, as with everything that's relative in that overall market of either the S&P overall industrials or the media business, we and Disney have kind of outperformed the others. But there's a further part of Time Warner that, you know, I'll just say it so you know, Time Warner is composed of two large pieces. There's the content company we've identified going forward, and there's the cable company. Now if you look at the cable company, which is part of the secular cable valuations that affect Comcast and DirecTV and all that. We think the prospects for cable are good. We didn't say we were going to separate it because it was inherently an issue. We just said it would be valued and operated better separately than this. But if you take cable being down, which it is, more than Time Warner parent—which is about half the company—it means the other half is up! So, going back to your point, if the things we've done in defining what Time Warner will be going forward, in getting cable ready for its own financial structure, and in doing the things at Time Warner we talked about, whether it's film consolidation, overhead reduction, and operating performance that's good at networks—it has caused the Time Warner content company to perform basically where Disney is. So essentially, there is some valuation recognition or realization of what's happened so far. And, of course, the question for Time Warner shareholders going forward is, well, how do you take this and move it up and create real returns over time?

L.G.: You're expected to get $9.25 billion from the cable spin-off when that's complete at the end of the year?

J.B.: Yes.

L.G.: What are you going to do with that money?

J.B.: Well, what we're committed to doing, not just with that money but the money we get from ongoing cash flow—because we have a very strong, large cash flow every year that we intend to have go up—is, we're going to either use it essentially—

L.G.: What is it—like $11 billion?

J.B.: Well, no, the cash flow for Time Warner today, with the cable in it, this is free cash flow net of debt payment and everything else—we've said, $4 to $5 billion. But let's put it this way, the cash flow for Time Warner, after cable, is disproportionately high compared to what it is now because cable uses a lot of capital. So it spins off and we'll be able to keep a large part of our cash-generated capability at Time Warner. So added to the money that comes out of cable—

L.G.: So the $9 billion plus—

J.B.: Several billion beyond that. So what do you do with it? This is what we always do. This will be an ongoing basis: Invest the money on any ongoing business needs that we have to make sure our existing businesses at Warner, Turner, HBO, etcetera—any returns they'd have that are superior returns, we can put in the money. We've never been short of capital for those purposes, so that essentially continues with the discipline that it's had. Second thing is, you also look for any acquisitions that would improve the strategic position of any of those companies or the total company. But in a way—now here's the problem—in the media business, most of the acquisitions that most companies have made have not produced a good return. And a lot of the investments or acquisitions Time Warner has made have not produced a good return. And so we would only make acquisitions that really we had a high degree of confidence that we knew how to operate them, essentially things that don't have that much risk because we'd know how to operate them, how to consolidate them with our existing managements and so forth. Which probably means, given the magnitude of the cash resources that we have, that a large amount of the cash flow isn't needed for either reinvestment in ongoing business or in acquisitions. Because it's hard to find acquisitions that are priced reasonably enough that we end up thinking they're worth doing. The Weather Channel—which was a good asset, and something we knew exactly what to do with—we just didn't think the price of what it would've cost to buy worked.

L.G.: What were they asking?

J.B.: They were asking, what was it, three and a half [$3.5 billion]? And we just thought it didn't give us a high enough return. The likely question, we're looking at all those things, and probably in shrinking the equity bases. Meaning, you know, buying the stock because if the stock is trading at a modest multiple, which is what they are trading at today, then you would in that case make more money buying your own stock—that you know exactly what it's worth—than you would buying some other things at a higher multiple.

L.G.: Because you've said over and over that the stock is woefully undervalued.

J.B.: Yes. Whenever you take cash and buy stock in some company, you're buying the earnings of that company. So if you're buying a dollar of earnings at Time Warner for seven or eight, then you'd rather do that than buy the earnings of a company you don't know for 12.

L.G.: How much stock would you buy back?

J.B.: I won't say. The point is, with all of those choices—whether you invest in the ongoing businesses, you look at acquisitions or you buy stock in Time Warner—what we will do will be aimed at simply maximizing the return on investment for our shareholders. That literally is the motivating way to decide.

L.G.: Because obviously that's the standard in the end by which your job here will be judged. What about NBC Universal?

J.B.: Well, that's just a speculation.

L.G.: It is. I just wondered if you're intrigued by that.

J.B.: You know, intrigued, do we have to use that word?

L.G.: No. Any word you want!

J.B.: Look, everyone speculates about what will happen to all of these media companies, and there's a fair amount of speculation as to whether G.E. will decide that the NBC Universal company benefits from being inside G.E. or not. To the extent it decides it doesn't, then they have to think of what to do with it. People leap to the idea, probably wrongly, as they say to sell it. That's not necessarily the case.

L.G.: Well, they keep saying, they won't.

J.B.: I know. If they did, they have a taxable sale or something, so I don't want to prejudge them, but they have to decide what's in their interest. But if they decided not to sell it, they may decide to spin it off, who knows? Anything that comes up, this is true of all the usual suspects, whether it's Scripps or NBC or Discovery, names come up in every sector we're in, and they ask, are we interested in it? Well, I would go back to what we just said.

L.G.: "They" being the kibitzers?

J.B.: Reporters, analysts, investors, everybody. We already said that we have kind of an obligation to look at anything that is out there that, if combined with our company, would produce a clear return for our shareholders. The problem with those speculations is that no one ever knows the price at which any of these things would be available. And we're kind of a big media company—at the lead if not the lead in most of the markets, from movie production, TV production, networks, magazine publishing. So if something comes up in one of those, we are an obvious candidate to consolidate and operate those businesses. We'd have to look at all of them, we will look at all things that happen. That does not mean we'll do them. It just means we'll have to look at them and see if they're available and they're things we think we could operate—and if we could, with a high degree of confidence, operate them at a return that exceeds the price of whichever method it would take to acquire them. We don't set out with a need or a predisposition to acquire them. We have kind of a responsibility to look at.

L.G.: By the way, earlier you mentioned acquisitions which have so far not worked out well for you, as with other acquisitions at other companies. I wonder if you'd care to tell me which acquisitions you have in mind.

J.B.: I wouldn't. I mean, some of them are obvious, and I don't want to start throwing feints. Never mind.

L.G.: You don't want people jumping out of windows just yet?

J.B.: No. I'd rather you can point them out.

L.G.: If you don't want to say it, that's fair, but I was just curious. Now, when John Malone says publicly he'd like to think about acquiring the dial-up business, how do you react to that? When he says maybe we'll exchange our [Liberty Media's] shares in Time Warner for that, either way, $1.6 billion dollars' worth?

J.B.: I don't think it's a good idea to give specific answers to people's overtures through press interviews because I talk to John directly.

L.G.: Well, John obviously thinks it's a great idea.

J.B.: Well, let's just say that what we want to say to John about it I say to him directly. But I think as a general matter, the same thing is true of divestitures as of acquisitions, which is, if there's something that we can divest, and by doing it, we can increase our return, we can invest it for more than what it's worth to us, then we would do that. It's pretty simple. This is like saying we like to do things that make money, which if you really strip it down, that's all we're saying. We like to do things that make money. Whether it's acquiring or not, or divesting. Of course, the trick is knowing whether they do make money.

L.G.: I don't think you've said that you're committed to selling the dial-up business.

J.B.: We actually haven't said we're committed to buying or selling everything. We're committed to doing either of those things that would make us money. It's basically what we're saying.

L.G.: When do you think this will all sort itself out?

J.B.: AOL is a bigger question. There's two major pieces of it, advertising-audience business and then the access-subscription business—if you stay on the access-subscription business, that's been a very profitable business, it still is. It's making a lot of money, but it's a declining amount of money because the subscribers are moving to broadband as everybody knows, and that's why we separated it from the main area, because the subscription dial-up business is reducing in volume and revenue and earnings, even though highly profitable, and the AOL advertising and audience business is growing in terms of users and revenue. We've had a flat few quarters, but we think because the traffic is growing, and we should get there in the right time. There's an addition in the new AOL portal growth. There's the new, new AOL, which is the advertising platform, which is related, and which benefits a lot from the AOL traffic growth, but within itself, has the highest rate of any ad platform on the internet.

L.G.: You've suggested that perhaps the scale might not be right.

J.B.: Yes, because if you look at the decisions and aims taken at Google, at Yahoo, at Microsoft, at AOL, at IAC, you see all of these competitors looking very hard to get scale. One reason is, if you go to the search part of the internet-advertising business, which everyone knows, Google has built a very strong dominant position in, that has resulted in not only revenue growth but a fairly attractive kind of long-term strategic outlook for Google. So that's in search—because they have such a high scale, and that works because they get an efficient auction in place for advertisers to come. They get a lot of consumer data that they can use to put efficiency into their search results and their ad placements, so it all feeds on itself. If you then go to the other parts of the internet that are not as consolidated as that, the internet advertising that is not as consolidated, which would be, let's say, display advertising, AOL is a leader in display advertising. But the other participants that are of similar scale are Microsoft and Yahoo, which means that they've got the potential for the same kind of scale in display that Google has in search. But Google's in one operating system and those are in three. So that is what's raised the question of whether the display ad business might be more competitive if operated at a larger scale, which is where that question comes from.

L.G.: Are you committed to keeping the magazines?

J.B.: We're committed to making the magazines profitable in the long-term for shareholders, for the owners.

L.G.: And everybody's going through the same troubles. No one's figured it out. You haven't figured it out.

J.B.: Well, no. There are a couple of things that are clear. There are certain parts of our magazine portfolio that are growing in revenue and earning quite handsomely. And the parts that are the hardest, particularly in a recession, are the straight news and worldwide journalism, news-gathering costs and so forth. The advertising support for those have come out of industries like autos and tech, pharmaceuticals, that are constrained a little bit in their ad purchases. So I don't think we should view the future of the publishing industry, or create what that is, in the middle of an economic contraction. Our readership is fine, our circulation is fine.

L.G.: For the dead-tree part of those businesses?

J.B.: We don't call it the "dead tree." If you think of the intellectual property that's inside Time magazine or People or In Style, the effectiveness of the journalism and the magazine publishing content is fine. I mean, readers like it, readership is up, and—

L.G.: That's across print and internet?

J.B.: Yes, and that's even in the print side, readership is up. You can't look at any magazine now as a print-only thing. They've got their print page and they've got their internet page. And the brands that we've got—this is true of networks as well as magazines or publishing titles—if you have a strong connection with a network viewer or People magazine reader or an In Style magazine—and I say "magazine," but they could be looking at it online, they could be reading it on the page— those things are very successful. Ad revenues are growing, circulation revenues are growing, the usage of the pages, including on the internet—

L.G.: For those two titles?

J.B.: All of our titles are growing. You have healthy print growth in some of the titles, that would be like People, Real Simple, and so forth.

L.G.: But not Time magazine.

J.B.: Not so much. You don't have as much healthy print growth in terms of ad sales, in the news magazines. That's true not just of ours, but across that part of the publishing business.

L.G.: Even some titles are experiencing losses?

J.B.: Reductions of income, not losses. No, I mean we're making a lot of money in our publishing. Our problem this year is that with the earnings, we wanted a plan for them to go up, and they aren't. That's the issue. And so, with magazines, as you move into digital, we have some tremendous success in moving to digital. Take People, which is our most profitable magazine. So if you take People and you look at People online, the number of page views of a user who goes to People online, versus any other celebrity site, is like five times what a person would do if they were looking at the competing online celebrity sites. That says several things. One is that the editorial translation of People from print to digital is very successful. What the People readers are getting out of People online in terms of the interacting with the content, interacting with each other, all the tools available for people online, means that it's a very successful example of a digital version of what used to be thought of as a print publishing title. But it says something else, which is, if you then are looking at People on the internet-distribution side, saying, how do you get that powerful People online brand most available to users on every kind of mobile screen, on every kind of home page connection? When people go to an internet site, could be Verizon, could be Yahoo, for any unique visitor that goes to celebrity in your site—if you link them to People, we will create five times the page-view traffic that can be created on whatever else they're doing. Which means five times the potential advertising revenue which we can now figure out how to divide up. That's a powerful incentive for distribution. It's very similar to when CNN and HBO or TNT goes to a cable operator and says, would you like to carry the network?

L.G.: I gather all those television entities have had a very strong year, everybody knows that The Dark Knight has so far made a billion dollars or whatever it is, and so those parts of your business seem to be going great guns.

J.B.: I should explain something about that, because if you look at those things like they're kind of measured weather events, then it doesn't tell you anything about the future.

L.G.: Unless you believe in global warming.

J.B.: But if you look at the way they come about—because they don't "come about," our company does them—then it tells you something about the future. And so if you look at what's happened, we've been going along for several years and saying that we thought that in the new world—in the media world—the basic trends in the media world are moving to the advantage of where our company is positioned. And the reason is that there is obviously a lot of new digital ways for individuals to go off in fragmentation. So it used to be 100 channels, now it's a million websites. But, the "long tail" where everyone is going off, the attention is going in two places. One is to highly personalized things, because it can do that; the other is to things that are very popular which everyone can now easily get access to: In other words, the huge global brand like The Dark Knight, like HBO, like CNN, like People online, like TNT, TBS, all of the things that we've built, aiming at strong, global brands, leading in their category.

L.G.: You've also suggested a cross-promotion, cross-pollination among your brands as an advantage.

J.B.: Huge advantage.

L.G.: Why is that? Is it more advantageous for TNT to be producing something and selling it to another Time Warner entity than selling it to Viacom?

J.B.: Well, we do both. The advantage is, we pursued a strategy, let's do our networks because we're a pretty big company. I can give you an echo of this in almost every part of the company, but it's easy to see TNT and HBO and Warner's.

L.G.: But you've also put the magazines in the mix of that. Because otherwise I'd be outraged that you'd be using a journalistic entity to shill for your entertainment products.

J.B.: I'm not saying there's some improper—let's go back to journalism a second, then entertainment, CNN. If you take, say, TNT, TBS, Cartoon Network, or HBO, you can do this with any one of them, there has been a question of whether companies should go off and launch 50 new networks which people kept asking us. We did some of it, but we said no, what we want to go for is big brands that we can make very important and worldwide, what we can really put resources behind. HBO is a clear one, because everybody has a clear idea of what HBO is, but they forget that inside HBO is a general entertainment thing that has hour series, half-hour series, movies, miniseries, sports, documentaries, reality, talk shows, comedy, music—I mean, it's a lot of stuff. It fits into a clearly defined brand. We could have gone and made five different pay-TV networks. We did, but we put them all inside a powerful network. It has very strong ability to get itself distributed worldwide. It has very strong abilities to raise its price, and it has very strong abilities to launch new programming: things like True Blood, like Band of Brothers, pick your example.

If you go to Turner, TNT, TBS—these are usually one, two, or three in the cable universe. So as audience came off of the old four broadcast networks, they went to cable, but where did they go? They went to really the lead reach networks, and the lead among those are TBS, TNT, often in the mix is USA and a couple of others, but we have two of them, TBS and TNT. And if you look at the ratings growth at TBS, 18 to 34, it's up like 30 percent this year. TNT is leading again, for the umpteenth year in a row, in basic cable. So big audiences coming off the networks to those, and what they're able to do is buy movie packages of successful, expensive movies that they can amortize across two networks, not one. They can buy successful series off of networks like ABC, NBC, CBS, because a lot of them are produced by Warners that we sold to those four networks that we're putting them up to bid. We do take bids and sell them to all comers including other cable venues. Think of Nip/Tuck to FX. But we sell a lot of them to our two big networks, TBS and TNT. And instead of fragmenting our efforts into a lot of little niche channels that frankly wouldn't have broken even and would've eaten up a lot of operating costs, we created more programming genres inside TNT and TBS. So you're looking now at very steady, affiliate carriage revenue growth, very high ad revenue growth that comes out of both, ratings growth and the ability to charge higher prices for the advertising because it's got two things—high reach, huge audiences on cable networks, and high environmental quality. In other words, hit shows in the lineup, Sex and the City, Friends, The Closer, Saving Grace, high-quality environment. So all that leads up to a virtuous cycle of strong revenue growth and economics—the ability to then fund more original programming and to strengthen those brands and then to make all of that available for international sales and internet sales.

L.G.: And you're describing something that's happening as we speak, as opposed to something like, "We're going to monetize Bebo with all these great things in the future." Let me ask you—

J.B.: Did I say what I'm coming to say? I'm just trying to explain the common thread.

L.G.: Because we're in this campaign season, I'm just wondering, who's better for business: McCain, who wants to reduce corporate taxes, or Obama?

J.B.: Oh, I don't know. Who knows? I'm not coming out with political endorsements of anyone.

L.G.: Well, anybody can look at your contribution list and see who you support.

J.B.: No, they can't. I didn't give anyone any money for precisely this reason—so if somebody's got me listed…

L.G.: Somebody's got you listed as initially giving to Chris Dodd. [Bewkes, who donated $1,000 to Senator Barack Obama's 2004 Senate race and also gave $1,000 to John McCain's 2000 presidential campaign, maxed out at $4,300 to Senator Chris Dodd's presidential campaign. But that was in 2007, before he became C.E.O. His policy now is to not to give to any candidates.]

J.B.: That's true, I did give a contribution to Chris Dodd.

L.G.: And I'm sure he's a friend of yours. You've known him a long time and he's from Connecticut, blah blah.

J.B.: That was in the primaries, and that's a friend. So I'm not taking a political position. We think it's our responsibility not to be doing that.

L.G.: I'm just curious, before you took this job I talked to [New Line Cinema co-chairman] Bob Shaye, and he was very—

J.B.: He was very generous.

L.G.: Very generous and he said, whatever you're going to do was going to be in the best interest of the company, and obviously he didn't see coming what happened. [In April, Bewkes shuttered New Line as an independent studio and folded it into Warner Bros.]

J.B.: You know, I was talking to him about it. He's a good man.

L.G.: He's off on his own at another venture now. But just on a personal level, you have longtime relationships and friendships with people within this company, and you have obviously a higher responsibility, you're the guy. How difficult has that been for you to maneuver through all that?

J.B.: That's a good question. I think if you have a personal relationship, we have business relationships but we try to have good, honest relationships of integrity, let's put it that way. So if we're talking here about the responsibilities that all of our top executives have for doing the right thing for the company, for the shareholders, when the needs and interests of that responsibility come in to dislocating any of us, including me, then all of us understand that is a professional, not a personal decision. And so I think that so long as the whole thing is determined that way, arrived at that way, and if it has to be true—it can't be a cover for some other motive—then relationships that we have, personally, everybody can look each other in the eye and say "I understand." You never know if those "business decisions" you're making are right, and if any of us are the object of being taken out of our job responsibility, and we don't think it's right, then you have difficulty with that. But I don't think that it comes to any question about motives. Taking in the case of New Line, Bob and Mike [Lynne, Shaye's co-chairman], they knew why, as we discussed it for some time. They knew what the reasons were and what responsibilities I thought and we thought we were trying to meet by doing this. And all of us, me and them, had a fairly sober concern for the effect of it on all the people in New Line, most of whom lost their jobs. That's not something anybody does lightly—and that's just New Line. Look at AOL, our management at AOL, [C.E.O.] Randy [Falco] and [president] Ron [Grant] and their team, and we here at Time Warner have had to make this strategy shift where we have removed from AOL about a billion-and-a-half dollars of costs. Well, some large part of that cost was salaries for our people, and they don't have jobs as a result of it.

L.G.: But some of those people you know and work with and have strong relationships with, versus, you know, thousands of employees.

J.B.: It's really, though, the same responsibility either way. I mean, you don't have less responsibility to people you don't know, if you're responsible for their livelihood.

L.G.: So you suggest I check back with you in two years when the world will be different and everything will be chugging along?

J.B.: I think it won't take that long, Lloyd. I think you should come back before that.

L.G.: Okay. When the stock will be at $26.

J.B.: We're going to make progress considerably faster than that.

Larry Summers

Thu, 11 Sep 2008 04:00:00 GMT

Star economist Lawrence Summers—best known as just plain "Larry"—still has the aura of a wunderkind. Not only did he become a tenured Harvard professor at the tender age of 28, Summers had already served as Bill Clinton's Treasury Secretary when, at 46, he was appointed president of Harvard University in 2001.

With his hard-charging ways, and his insistence on shaking up what he saw as the complacent university establishment, especially the powerful faculty of arts and sciences, Summers gained popularity and support from undergraduates and alumni, but antagonized many others. Five years after his inauguration, it all came crashing down amid a series of ugly and highly publicized confrontations, particularly with celebrity professor Cornel West, who went public with his complaints and departed for Princeton after Summers privately questioned his academic output. The coup de grâce came when Summers, in a closed-door symposium, reportedly mused that there might be intrinsic reasons, worthy of study, why women were underrepresented in the science fields. He was forced to resign amid a predictable outcry.

SUMMERS' TIME

On the Economy:
"Moving beyond a 'trust the market no matter what, what's best for Wall Street is what's best for America' approach to the financial markets, is important."
On Echoes of 1998:
"This crisis this time is about us, not about them."
On Business:
"It's a lot less political than Washington, and Washington's a lot less political than academic administration."

These days Summers is back teaching at Harvard—but not, he points out, as a member of the arts and sciences faculty—and dipping his toe in the grubby business of making money while advising Senator Barack Obama's presidential campaign. On Monday, he discussed his life and times in an exclusive interview with Portfolio.com.

Lloyd Grove: So, first of all, what's your reaction to what has happened with Fannie Mae and Freddie Mac?

Larry Summers: Oh, it's a sad story. Something like what Secretary Paulson did was almost certainly necessary, given the problems the economy and those firms found themselves in. To have allowed the general financial failure of those firms would've been to invite catastrophe in financial markets, the housing markets, and the economy. It's a sad thing that things came to this point, and it's a reflection of the eight years of relatively unsuccessful economic performance that has fed through the financial system and the housing market. It's a reflection of the special interests that, over many years, created the "heads I win, tails people lose" privatized-gain-socialized-loss formula for the G.S.E.'s (government-sponsored enterprises, like Fannie Mae and Freddie Mac). And, in a different way, it's a reflection of the fact that their regulator was cheerleading for their capital adequacy until the very absolute last moment. So while it's often said that success has many fathers and failure is an orphan, this unfortunate episode probably does have a fair number of parents.

L.G.: Are you one of them?

L.S.: Um, I hope not! During my time as secretary of the Treasury, to the outrage of a very large number of lobbyists in both political parties, I spoke out about the G.S.E.'s as a potential source of systemic risk, and raised questions about the adequacy of the regulatory framework within which they were operating, and pressed for clearer procedures to deal with any financial problems that they might have. Unfortunately, I was sorry at the time that there wasn't more Congressional responsiveness to those expressions of concern.

L.G.: Do you think if you'd been any more persistent or louder or more rabid on the subject that you would've been able to break through and counteract the well-oiled political machine?

L.S.: Oh, I think we'll never know. But I think, at that point, the strength that the institutions had and the loyalty that they commanded on Capitol Hill was very, very strong. So I think it would've been extremely difficult to have done anything. My conscience is clear.

L.G.: Where do we go from here?

L.S.: My hope is that we will use the next 18 months to find an appropriate and much more explicit division of responsibility between the private and the public sector. There almost certainly is a need for the public sector to take an explicit role in doing some of the things that the G.S.E.'s were doing, providing an emergency backstop for the mortgage markets, providing support for some lower-income populations. There are other areas where there's no need for a public institution, and certainly not for public guarantees that benefit primarily shareholders. And so fostering the right division of labor between private and public institutions, thinking about the broad questions—if there are going to be government guarantees, should there be only two enterprises that are able to benefit from them?—these are all questions that will need to be carefully debated over the next year.

L.G.: And obviously it's going to be the job of the next administration. You've suggested that they might be broken up and sold off in pieces. What do you think should happen?

L.S.: I think it's going to require a great deal of study and it's going to require exploration, seeing how the mortgage market functions over the next while before one's in a position to make any judgment: I don't think this is a moment for market fundamentalism. Anyone who looks at the performance of the subprime markets and the jumbo markets where the G.S.E.'s were absent, over the last year, has to see that the calls of many for simply privatizing and shrinking these institutions may well be taking a large risk with a crucial part of the financial system. At the same time, you can't keep going the way we've been with privatized gain and socialized loss. So I think it's a very technical and complex question and it's premature to suggest a blueprint at this point.

L.G.: By the way, do you feel like you're done with government work? Or, should Obama win, would you like to have a hand in fixing this problem?

L.S.: Oh I'm—I certainly have strong opinions on a range of public-policy questions, but I'm very happy right now doing what I'm doing, teaching and consulting and writing on public-policy issues.

L.G.: So you don't think much of Henry Kissinger's idea that you should be given a permanent job in the White House to fix flabby policy ideas?

L.S.: I'm happy doing what I'm doing and flattered by Henry's observation.

L.G.: You're "happy," that's such a political answer, what everybody's supposed to say. But if you were offered such a thing, you're so happy doing what you're doing that you wouldn't take it?

L.S.: I think I answered your question, Lloyd. I said as much as I'm going to say.

L.G.: Okay, fine, I hear you. So about how long have you been advising the Obama campaign on economics?

L.S.: The last few months.

L.G.: How did that come to pass? I notice that you've given pretty much equally to Obama and Hillary in terms of your campaign contributions. Were you initially with Hillary? I notice that your contribution to Hillary was after her campaign effectively ended.

L.S.: Precisely, yes. I was neutral during the process, just focused on hoping we got a strong Democratic candidate. And as people sought my advice on economic questions, I've provided it. And a number of people from the Obama campaign have sought my advice, and I've tried to be helpful.

L.G.: Have you had some chats with Obama about policy?

L.S.: I don't get into the details of private conversations. I was part of what I thought was a very impressive meeting that he had with a group of economic advisers several weeks ago, where we reviewed both the current financial difficulties and some of the challenges that a new administration was going to face.

L.G: Tell readers why and in what ways the Obama economic policy is superior to the McCain economic policy.

L.S.: Look, I think after a period during the 1990s, when the economy grew rapidly and a very large fraction of Americans shared in the prosperity and America's influence and respect in the world were expanded, we've been in a period in recent years when economic expansion has been less strong; when its fruits have gone to only a very small share of the population and where our position of trust and respect in the world has been very greatly eroded. So I think the question is whether we're going to change course or whether we're going to stay on the course. And I think aggressive response to recession through fiscal stimulus, including through rebuilding infrastructure in a strategic way, is important, and that's something that's been a focus for Senator Obama. I think moving beyond a "trust the market no matter what, what's best for Wall Street is what's best for America" approach to the financial markets is important if the economy is to work. That's what Senator Obama favors. I think we're in a time when wage growth has lagged far behind productivity growth, and when there's been a large-scale movement of income and wealth toward the top 1 percent. That may be hard in some ways for government to fix, but surely government should not reinforce it with its tax policies. And so I think making the focus of tax reduction be on the vast majority of American families, rather than on a very privileged few, is the right and responsible economic policy. I think that for the medium and longer term, it is essential that we have responsible budget and fiscal policies that maintain confidence in our economy and support high levels of investment. That's what we did in the 1990s. The three and a half extra trillion dollars that the Tax Policy Center estimates that Senator McCain will issue in debt over a decade will have a very substantial adverse impact on investment and growth and incomes, in my view. I think we've got to have a more focused and a more public approach to assuring health-care availability, so that we're in a position to contain costs. And that's what Senator Obama has advocated.

L.G.: Are you concerned about the deficit?

L.S.: Yeah, I am. But during a recession, the top priority for the near term isn't deficit reduction. For the medium term, an economy with almost no national savings, with the baby-boom generation starting to retire, fiscal responsibility is essential. Senator Obama, by talking about serious health-care reform, by talking about the need to address the Social Security issue, by focusing on making sure that each new initiative is paid for, has put forth a fiscally responsible program in the tradition of the approach that was taken during the 1990s. The other side has mostly described the additional taxes it's going to cut for the top 1 percent. And those several trillion dollars of deficit—it's not my estimate, and it's not some Democratic adviser's estimate, it's think tanks that review both sides' proposals—those extra several trillion dollars are, I think, likely to be quite burdensome on the economy. They took a risk with foreign confidence in our system, they took a risk with our vulnerability at a time when for the first time in history, really, the world's greatest power has made itself the world's greatest debtor.

L.G.: The Republicans generally seem to have had a lot of success in boiling down what they're doing to this very attractive idea of four words really: "low taxes, small government." Those are simple concepts to communicate in the next 58 days or whatever it is. Is there a simple, elegant, campaign-ready way to communicate the Obama plan?

L.S.: You know, I try to do policy, not spin. Yes, it may be that policy over the last eight years has been simple to describe, but the descriptions haven't fit the reality, since spending has gotten completely out of control on bridges to nowhere and much else, and the consequences for ordinary families have been disastrous. So I prefer thoughtful economic policy that may take whole sentences to describe over simple economic policies that can be summarized in four words, but the four words don't actually correspond to what's done, and the consequences are pretty serious. I think Obama's economic policies would involve government providing a foundation and the necessary... assistance to enable people to maximize their potential in the marketplace. And I think that's a much sounder approach.

L.G.: Do you have any idea where the bottom of the housing crisis is? Have we reached it yet or do you think it will be, as Yale economist Robert Shiller has said, perhaps worse than the Great Depression?

L.S.: Oh, I don't minimize at all the seriousness of our economic problems. There are a zillion statistics you can compare. I don't think it's realistic to suggest that somehow America is going to suffer in the way that it did during the Great Depression, when the unemployment rate was 25 percent and more than half the homes in the country were foreclosed. At the same time, I fear that we've got some significant room to go in the housing market, and I'd expect further price declines for another six to nine months.

L.G.: How does the current global credit crisis compare with the Asian and Russian crises of 1998 that you had to deal with?

L.S.: Well, I think the central difference is that this crisis this time is about us, not about them, and that makes it that much more immediate and painful. Some of the very same mistakes—of excessive budget deficits, failure to regulate financial institutions, excessive leverage—that led to those problems, are what led to our problems. That's why we were so focused in the 1990s on fiscal prudence, on proper regulation of financial institutions, you know. I think one thing we learned in the course of responding to those crises was that you never see the end of a crisis. You can usually date the end of the crisis to the first moment when a public official makes a forecast that proves too pessimistic. And I think, unfortunately there's been some tendency of the administration, and certainly of Senator McCain, to cheerlead their way through the situation by talking about how strong the economy is, and I actually think the moment will come when we address this crisis, when it's described in frank terms. It's from that point that you can begin to see repair, but I think there have been some real failures of recognition and acknowledgment in the response over the last year.

L.G.: But isn't that just human nature at work as well?

L.S.: Sure. Hindsight is always twenty-twenty. And I'm sure with the benefit of hindsight, in some areas, we no doubt would've made different judgments. But I think if you look at the responses and the comments that Chairman Greenspan and Secretary Rubin and I tried to use during the 1990s—President Clinton above all—we didn't try to minimize or deny problems that everybody saw were there. I think it's an important part of addressing these problems, and so I've been surprised by the political figures who said that this was just whining or the political figures that said the economy was really strong, or that this was a temporary dip. This is something the United States can manage, but I don't think we'll manage it successfully by minimizing its significance.

L.G.: You mentioned Alan Greenspan. A lot of fingers have been pointed at him, as you know, for helping create the conditions that caused the subprime crisis to happen. Do you think that's a fair or unfair criticism of his role?

L.S.: Lloyd, I think, looked at over 17 years, Alan Greenspan had a tremendous record as Fed chairman. It's easy to look at things with hindsight, and often decisions look different with hindsight than they do with foresight. And, unfortunately, you have to make them with foresight. Battlefield medicine is never perfect, and that's certainly true in the financial sector. But I think if you look at Alan Greenspan's record in its totality, it's a strong one.

L.G.: I was intrigued to read a comment of yours on the death of Milton Friedman, that in some sense we're all Friedmanites now, in the same way Nixon said we're all Keynesians. What did you mean by that?

L.S.: I mean that I think we've all come to a much greater appreciation of the role of prices, the role of incentives, and the role of markets. I mean, to take just one example, now the pro-environmental alternative is a cap and trade system or a tax on carbon emissions. I tend to support a cap and trade system, and I think if we ever make progress against global warming,—as I hope we will, as we need to—it will come through some kind of cap and trade system. Well, that's relying on markets, and that's a very different place than where the country was, and where thought was, when I went to college or graduate school, when the assumption was, to address a problem like that, you would use command and control regulation. And it was only a few isolated people who would support the use of market instruments in the same way. Almost everyone today supports charter schools and some elements of competition within education. That was a heretical notion a generation ago. So I think the kind of emphasis that Friedman has brought on what markets can do has gained quite wide acceptance. Where I would still very much part company with Friedman is in believing that while market outcomes may be efficient, they may be profoundly unfair, and there's a need for government to do things to redress the balance—and in believing that a market system can only work within a broader legal framework that only government can establish.

L.G.: Tell me, you've been involved in an online credit-card venture with Steve Case, as a managing director of this fund, D.E. Shaw, which seems to be part hedge fund and part venture capital. It's a huge thing isn't it?

L.S: Lloyd, since I've stepped down as Harvard president, my primary activity has been as a professor of economics at Harvard, teaching as a university professor in the various schools of the university.

L.G: Teaching undergraduates, too, right?

L.S.: You know, I practice what I preach.

L.G.: God bless you, sir.

L.S.: I put emphasis on undergraduate education when I was president, indeed taught undergraduates while I was president, so I've kept on teaching undergraduates. I've also, on a part-time basis, affiliated with D.E. Shaw, where I provide advice on a range of macroeconomics and strategy questions. Having studied financial markets as an academic, and having been closely engaged with them as a policymaker, it's been enormously interesting for me to get the participants' perspective on financial markets.

And then I've enjoyed being involved with a number of smaller companies such as the Revolution Money venture, which has a potentially very exciting credit-card technology, using credit and debit technology, using the internet that, in a sense, brings together bricks and clicks by providing both a capacity for regular retail transactions and also for online.

L.G.: Is that on the market yet?

L.S.: On a partial basis—through certain vendors and certain stores. And then there's a significant number of the cards now accepted at over a million places. A growing number of people are carrying the card, or the technology is providing the backbone for other cards that people are carrying.

L.G.: On D.E. Shaw, I'm just curious, did you advise them to short Fannie Mae and Freddie Mac?

L.S.: Oh, I provided macroeconomic advice, not individual stock advice. Certainly, as goes with the financial-industry standards, I don't talk about the specifics of any advice I provide.

L.G.: And then you invested in Big Think.

L.S.: I did. You know, one of the great things about being in a university is the remarkable students you meet and the remarkable friends of the remarkable students you meet. And one of the founders of Big Think was friends with students and colleagues of mine. I was very excited about the idea of raising the level of public dialog, and so found it to be an exciting venture, and so invested on a small scale. We'll have to see how it all works out.

L.G.: You've obviously had a career, or several, in economic theory and public policy and in academic administration. What's it like being in the marketplace?

L.S.: It's a lot less political than Washington, and Washington's a lot less political than academic administration. There's pretty clear ways of knowing whether you were right or whether you were wrong. I find that to be satisfying and exciting. For somebody passionately interested in economic questions, you learn a lot by being alongside people who are actively engaged in trying to make profits.

L.G.: Is that a bit of a thrill? Do you get a kick out of that?

L.S.: Oh, you know, I'm somebody who's not been primarily commercially motivated. That's why I was a professor, then I was a government official, then an academic administrator. Now my primary activity is back to being a professor. But I've learned a lot and gotten a great deal of satisfaction and considerable zest out of these various business ventures that I've been involved with—again, very much, in the case of most of them, on a part-time basis. And I've certainly come to understand many aspects of financial markets better through my work with D.E. Shaw.

L.G.: You've mentioned that it's more political, for the sake of argument, let's say at Harvard than it was in Washington. Do you agree with that old saw that the reason academic politics are so vicious is because there's so little at stake? What's your sense of what you learned from that experience?

L.S.: I wouldn't want to deny that there's sometimes pettiness in academic life, but I actually think the stakes in how we organize basic science in the United States, the stakes in what the next generation of leaders are taught during the most formative years of their life, the stakes in what kind of international presence American universities do or do not establish, I don't think these are minor issues at all. And some of the steps that we were able to take during my presidency at Harvard—establishing for the first time for a major American university the principle that any family with income below $60,000 wouldn't have to make any financial contribution to undergraduate education; establishing as a normal expectation in a leading university that students would have an international experience before they graduated; commencing a building program that in total was 17 football fields worth of laboratory space for cutting-edge interdisciplinary science, not done with individual investigators but done collaboratively—I think these are large things that have a large effect on the society. So I would reject the idea that the stakes in what gets decided at universities are always small.

L.G.: You had enormous support from the undergraduate community and other sectors of the university community who didn't want you to go. You were very popular among the alumni, people giving large amounts of money to Harvard. And yet it wasn't sufficient. The faculty was by and large against you. Did you learn anything from that whole crucible?

L.S.: Oh, you know, I think as I said in my letter when I decided to resign, I was very proud of what the university had accomplished during my five years as president and the path that had been set. And whether it's in the construction of new science buildings or students studying abroad or extension of financial aid, I've been gratified by the way in which acting President [Derek] Bok and then President [Drew Gilpin] Faust have followed some of the broad priorities that I had set out and thought were very important. I tend to look forward more than I look back. I wish I'd been more successful in having the kind of good relationship with the liberal arts and sciences faculty that I had with the faculty in many of the professional schools. As with any kind of conflict, it's probably a mistake to think that fault is entirely on one side.

L.G.: You've acknowledged that what you said about women and science—which, as you pointed out, has been misinterpreted and oversimplified—was probably very imprudent of you. So you yourself have taken some responsibility.

L.S.: Yeah, and I certainly wouldn't ever claim not to have made mistakes, not to have done things that if I had it to do over again, I wouldn't have done. I don't think what was reported was a very fair reflection of my views, but the existence of the controversy didn't help the university. And my job as president was to help the university. That's why I said that I regretted the words. At the same time, I think the catastrophic, important thing I regret is that if other scholars take from the response to my remarks that there are any subjects that are not suitable for research or beyond discussion or not appropriate for speculation. Because it seems to me that if universities should stand for anything, it should be openness to all arguments, no matter how controversial.

L.G.: The other things—your set-to with Cornel West and also your remarks about the troubling rise of anti-Semitism on college campuses. On that point, do you see that's changed at all? Is it less troubling to you now, the anti-Semitism that you pointed out?

L.S: There still are things that give cause for concern, and certainly outside of the United States, where British university faculties, as a collective faculty union, voted not to engage with Israeli scholars, and there's certain European academic journals that don't accept submissions from Israeli scholars. I think the "divest companies that invest in Israel" movement, which had some strength on American college campuses, my sense is that has faded away. And that's reassuring, because it seems to me, whatever you think about the merits of Israeli foreign policy or Palestinian foreign policy—certainly from my perspective, there's much to criticize on both sides—the idea that one side should be demonized and become the object of divestiture continues to seem profoundly misguided to me.

L.G.: Well, I guess the thrust of all these questions about the past is when you were in Washington, you were famously brilliant and equally famously hard-charging and not a paragon of tact and diplomacy. And I'm wondering whether you've mellowed at all?

L.S.: I think we all become wiser as we age, and I think I learned a lot in Washington. And certainly I'm sure I learned a lot during my five years as president of Harvard, and I've certainly learned a lot in the last couple years, and I hope that I will always keep learning and improving. At the same time, I'm somebody who wants their errors to be of trying to do too much rather than trying to do too little, trying to make as large and as constructive a difference as I can. That's a perspective that I bring to whatever I try to do.

L.G.: And some people were surprised that you actually took up a faculty position at Harvard after all that, but I guess that says that you weren't bitter about the experience.

L.S.: Oh, I didn't take a position within the faculty of arts and sciences, as I say—

L.G.: You're a university professor.

L.S: Yeah, I look forward rather than backward. And I've enjoyed the writing I've done, I've enjoyed the teaching that I've done, I have not missed the politics of the university from which I systematically remove myself. I have found it enormously satisfying to get back involved, thinking about economic-policy questions at a moment when, Lloyd, I think there are larger policy economic-policy questions that will get resolved in the next election than in any election over the course of my lifetime.

L.G.: So if somebody came to you and said, "Would you be president of our university?"—you would say?

L.S.: I suspect the academic administration phase of my career is over.

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Kenneth Feld

Thu, 28 Aug 2008 04:00:00 GMT

As chief executive of the family-owned, Virginia-based Feld Entertainment—which claims to be the world's largest live-production company—Kenneth Feld controls some of the planet's more enduring brands.

First and foremost is the Greatest Show on Earth—namely, the legendary Ringling Bros. and Barnum & Bailey Circus, which has been in the Feld family for nearly a third of its 138 years. Then there are traveling extravaganzas licensed by the Walt Disney Co.: Disney On Ice, Disney Live, and High School Musical. And finally there's Doodlebops Live, which the 59-year-old Feld describes as "rock and roll for four-year-olds." The whole enterprise (founded by Feld's father Irvin, one of the original impresarios of rock and roll for grownups) employs thousands of performers and support staff (to say nothing of dozens of elephants and other large once-wild animals), owns and operates two mile-long private trains, and brings in 25 million customers—"children of all ages"—in 52 countries. Annual revenue is reportedly around $750 million and climbing.

But not everything under the big top is family-friendly fun. There have been disastrous incidents—notably the near-fatal Bengal tiger attack on Roy Horn in October 2003 that abruptly ended the profitable Feld-produced Siegfried & Roy act in Las Vegas. And there are a couple of ongoing lawsuits that have attracted a lot more negative publicity (including a withering 60 Minutes exposé) than many corporations could easily withstand.

VIEW FROM THE CENTER RING

On Siegfried & Roy:
"We took them from really being a specialty act into becoming headliners and worldwide entertainers."
On PETA:
"Let's get real, there is no 'wild' the way it may have existed 100 years ago."

In October, a federal court in Washington is expected to try an elephant-abuse lawsuit against Ringling Bros. filed by various animal-welfare organizations, alleging routine beatings and improper chaining among other cruelties. And two weeks ago, a superior court judge refused to throw out a nine-year-old lawsuit by freelance journalist Jan Pottker, who claims that after she published a magazine article about Feld Entertainment that deeply offended him, he ordered his security team, led by former C.I.A. operative Clair George (who was convicted and then pardoned over his role in the Iran-Contra affair) to spy on her and ruin her chances at professional success. Last week Feld discussed these and other issues in an exclusive interview with Portfolio.com

Lloyd Grove: You basically own and operate a rather treasured piece of Americana, do you not?

Kenneth Feld: It is, you know, Ringling Bros. and Barnum & Bailey. It's 138 years old, so we're actually a year older than baseball. And it's been in our family now over 40 years. I think it's been in the Feld family longer than either Barnum, Bailey, or the Ringling Bros., for that matter.

L.G.: Wow.

K.F.: So it's sort of like being the trustee or the steward of a great American institution, and to make sure that we can do everything while it's sort of our turn to be that trustee, to make it grow and thrive, and to entertain as many families as possible.

L.G.: At one point you sold the circus to Mattel, right?

K.F.: Yeah, that took place in 1971. All during that time, my father and I still operated it. And then in 1982 we bought it back from Mattel.

L.G.: Now it's been widely reported that it was for $50 million, but I also understand it was in stock—which plunged. Then you bought it back for $23 million. So you didn't make as much money on that whole transaction as commonly assumed, right?

K.F.: Well that's true. We had a lot of Mattel stock at the time, which at that point was not worth so much.

L.G.: Didn't it go down to 90 cents a share at one point?

K.F.: I think it actually went down to, like, 50 cents a share. It was devastating because we basically had everything wrapped up in the circus, and it wound up being in Mattel stock. So the greatest thing really for us was when we were able to reacquire it in 1982. It's a kind of business that probably does not belong being a public company, in the sense that it's been around for so long, and we had such a long-term outlook on strategic things—how we operate, what we do, the investment that we not only put into Ringling Bros. and Barnum & Bailey, but the Center for Elephant Conservation that we have, which is a real passion of mine. So I think if we were a public company, the demands for higher margins and those things would maybe preclude some of that. It's a great business for the family, and I'm fortunate that my daughters are now in it.

L.G.: Do you have two involved in it?

K.F.: Yes, we have three daughters, and two are involved. Nicole, who is the oldest, is the producer of Ringling Bros. and Barnum & Bailey, so she's really responsible for the whole conception, you know: the creative team to put on the new shows, and she oversees the acquisition of the talent. She's also involved in the production of some of our Disney On Ice shows and also High School Musical. Alana is executive vice president and producer of all of our stage productions and the Doodlebops. It's a different kind of touring model that goes worldwide, but these are stage shows for families, and young families, so in many cases that's maybe the first theatrical production that kids will ever see—these Disney Live shows and the Doodlebops.

L.G.: You describe Doodlebops as rock and roll for four-year-olds?

K.F.: Exactly. I don't know if you've ever been there, but you would probably agree. I think the great thing is that a lot of the music is very derivative of music out of the '70s, so it's not what I would call total bubblegum. It's actually quite appealing to adults as well. The Doodlebops were on TV, which was produced by a company called Cookie Jar. We licensed the live touring rights from Cookie Jar. They've been on tour for two years, so this is going into the third year now with them.

L.G.: Give me a sense just of the scope of Feld Entertainment. With all these shows touring—Disney On Ice, Disney Live, High School Musical, Doodlebops, of course the circus—how many people are employed doing all this all over the world?

K.F.: We have something over 2,200 employees, but I think the most amazing thing is, we will play to over 25 million people this year around the world with all of our shows. We have three touring circuses, and currently we have 18 shows touring around the world. We'll play in 52 countries every year.

L.G.: And you have these mile-long trains that you own and operate?

K.F.: We do. That's really one of the most unique things. I think we're the only entertainment in America that travels on its own private rail train, each one over a mile long. And all the performers actually live on the train. All the equipment goes over the train as well.

L.G.: This is pretty much a unique business. I don't think there's any other like it of this scope in the world. But are all the people who work in the circus...are they your employees? Or do some of them, like your stars and some of your performers, have special contracts?

K.F.: No, actually, even the star performers, they're all employees. But they're on contracts that may be of a finite term. Typically, the star would actually be on a minimum two-year contract, and each show, when it's produced, goes minimally two years. It may go longer.

L.G.: But, for instance, Bello Nock is in the same boat? He's obviously a marquee performer and has his own identity, but he works for you?

K.F.: That's right, he's a full-time exclusive employee of ours, and he's been with us now—this is his eighth year.

L.G.: And what about Siegfried & Roy? You had a different kind of relationship with them, right?

K.F.: Well, with Siegfried & Roy, the relationship really went back to 1981, because I produced the first Siegfried & Roy show at the Frontier, and that went through, like, '87. And then in '88 and '89 I took them to Japan and then to Radio City. In 1990, we opened the show at the Mirage Hotel in Las Vegas, which went until October of 2003 when the accident happened. But with Siegfried & Roy, they were the stars of the show. We produced the shows, obviously with a lot of creative input from them, and they had a participation in it as well. So no, they weren't employees in the same way, in the same sense. There was a long-term contract, I mean, basically their entire career. We took them from really being a specialty act into becoming headliners and worldwide entertainers; so from '81 through 2003. We were in charge of their career as far as the production and all the live shows that they did.

L.G.: Obviously you're in a business that's "death-defying" by definition, "tempts fate daily," I think. So tell me, how did you hear about the accident? [During a live performance on October 3, 2003, a 380-pound white Bengal tiger named Montecore attacked and nearly killed Roy Horn, sinking its teeth into his neck.]

K.F.: The great thing about live entertainment—and all we really do is live family entertainment—is it is dynamic, things can happen every day. I think the reason why I love it is every time I go to one of our shows, it's always different. There are always nuances and things that happen. We do deal with a lot of risk. In the circus, you have people walking on high wires, you have people working with tigers, you have all of these things that go on. If you think about it, with Siegfried & Roy, they worked for their entire career with exotic animals, and this was just another day. And the difference, I think—and it may sound a little cold, and it is not meant to be—is that these people are so extraordinary and they have to have every day a good day. I mean, we could have a bad day. You could have to work today and have a headache, and you could still conduct this interview with me. These people have to be the same every day; they have to be perfect. In many ways, it's more disciplined than Olympic athletes, because the Olympic athletes, although they go through this constant training, they get up for that moment and that one day. All of our performers and our people have to be up and in prime condition for the eight, 10, 12 shows that they may be doing each week. So this was the case of something happening, and I don't really know that anyone will know for sure what happened. Roy is one of the most extraordinary human beings I've ever seen with his relationship with animals. There was a moment of something that happened. I firmly believe that it was not intentional, it wasn't what you would call an attack. I mean, if he had been bitten on the arm, he probably would've continued working the rest of the show. The problem was that it was on the neck—and the carotid artery—and that's the seriousness of the whole incident.

L.G.: They're not house cats, they're wild animals-and very efficient killing machines in the wild.

K.F.: They are, but it's also the relationship and the bond. If the intent was to kill him, that would've happened.

L.G.: So where were you?

K.F.: I was actually in Maryland at the time. I got on a plane, and I was there literally less than 12 hours later.

L.G.: And Roy Horn was in surgery?

K.F.: Yeah. So we had to make some very crucial decisions at the time, and make assessments of the whole situation. The one thing that I've always believed in and what we do here, we're in the family-entertainment business, but we feel a great obligation to all of our associates and employees. So we're always very direct and up front with them and tell them exactly what's going on, whether it's good news or bad news. We felt that's always the best way to work with our employees. There's a great level of trust and dedication they have. Everybody wants to know what happened, so I did gather all of our people together, told them what was happening and what I thought the prognosis was at the time, and that I didn't believe the show would be able to continue.

L.G.: So Roy has continued his recovery. Are you no longer associated with them?

K.F.: No, I mean, we're very good friends—there really is no business [relationship] in the entertainment business.

L.G.: Just in a business sense, they were obviously a hugely profitable part of your business, and then it just ended suddenly. Was that the case? You basically lost a profit center in the business?

K.F.: Yeah, it was a stream of revenue [$45 million annually, according to published reports, and Feld had a piece of it]. As great as it was, and as wonderful, our business is quite a bit more significant than any one production or one show. Right now it's pretty extraordinary, and I think most people don't realize 55 percent of our business comes from outside the U.S., 45 percent is in the U.S., and the greatest rate of growth obviously is internationally because there are more people.

L.G.: In what countries, Ken, are you having your highest growth rates?

K.F.: Well, we have a huge growth in China, Russia, India, and in Latin America. It's really worldwide. Last year we had five tours in Europe for the first time, and we'll have the same this year. In China we'll probably have about 34 weeks in 2009.

L.G.: How are you getting around those countries-by truck?

K.F.: Yeah, we operate in containers and trucks and those sorts of things.

L.G.: What's the price of gas done to your bottom line?

K.F.: It's, you know...it's affected everybody.

L.G.: To say nothing about the price of corn and grain, because animal feed is hugely expensive now.

K.F.: It is. For instance, our elephants are typically fed oat hay, which we import. It depends where we are in the U.S., but we bring that in usually from Canada and places like that, where they have high-quality oat hay, which is quite expensive. But for us, the fortunate thing is having the international business that we get the advantage of a weak dollar when we're abroad, and those things cycle around. So the dollar is strengthening now, so that's better for us here.

L.G.: You have to be alert to currency exchanges? Are you constantly keeping your eyes on the currencies and trading them?

K.F.: We are. We're always hedging the different currencies, just as general practice, and as we grow more and more internationally, those are the things that we do keep our eyes on. And with the economies, there are much greater swings. For instance, up until this year, we had not played Indonesia I don't think for 10 or 12 years. We went back to Indonesia this year, and it was huge business and it was a huge ticket price, which was quite surprising. And the other thing is, for instance, in Argentina, where before you couldn't get the average ticket price, now the prices are comparable and in some cases higher than what we get in the States.

L.G.: Is there any reason why you were out of Indonesia for 12 years? Was there some political issue there?

K.F.: There were a lot of security issues, and the economy was much more volatile. There were political things that made it not so stable, so once there was stability that returned, we returned. And there was this huge pent-up demand for the family entertainment that we provide.

L.G.: Now one realm in entertainment that you seem not yet to have cracked, although you've made many forays into it, is Broadway. You haven't done that since 1996 or something like that. Do you intend to go back and try again?

K.F.: I will never say never. It's not so exciting for me.

L.G.: Why not?

K.F.: Well, I'll give you a great statistic. Ringling Bros. and Barnum & Bailey, every year, all of our shows play to more people than all the Broadway shows combined. So it isn't a business in the same way, and you're not in control of the business in the same manner.

L.G.: I assume actors are more difficult to deal with than clowns.

K.F.: No, I wouldn't say that. That really isn't what I meant. It's more the customer base in the audience. I understand families, that's what we specialize in. I'm not sure I really understand the theatrical audience in the same sense.

L.G.: Now, I understand you're a privately held business, so you don't have to tell me anything you don't want to, but I am curious: Is the order of magnitude of the business something like a billion dollars a year?

K.F.: It's getting up around there. It's large. I'll give you the numbers and then you can do whatever kind of math you want. We play to over 25 million people a year, and currently we have 18 touring productions, and there are more in the pipeline. The ticket prices range anywhere from $25 up to forty-something when we play Japan. The average in Madison Square Garden is probably somewhere in the neighborhood of $29 to $30.

L.G.: I see. By the way, not to dwell on the death-defying aspects, but when I took my kids in 2004, we saw the scarf twirling with Dessi Espana. Then, to my horror, I read some weeks later that she fell and died. I guess that's a pretty rare event?

K.F.: That is very rare. That was one of the unfortunate tragedies and, you know, she had been in the circus basically since birth, and I'd known her. And so it was a devastating thing that happened, and it's quite rare and it's quite extraordinary in not only our circus but virtually every circus around the world.

L.G.: But just as a marketing guy, the fact that that's a possibility—and not to be morbid about it—but how much of that is part of the draw? That people are facing death daily?

K.F.: I think all we have to do is look at what has become general fare on television, with these kinds of reality shows and things. They're what I call fake reality shows because there is the perceived threat of some danger or something. But the original reality show in the world is Ringling Bros. and Barnum & Bailey, and it goes from what these people do every day for a living. But their families are there. We have a preschool, we have a nursery, we have school, we have generations after generations of these wonderful circus people that do something that, in the mainstream, people don't get. And I think that's the thing about our business which is pretty amazing—that there's not that much of an industry, so there's no real understanding of the mentality and the drive and what makes the performers of the Greatest Show on Earth do what they do—and why. It is really that inner spirit of actually risking their life to entertain families and the public, and that goes beyond, I think, what most people ever do. And it shows you that spirit and it shows you why it is truly the oldest form of entertainment in the world and why it's still relevant and viable in today's world.

L.G.: To what extent are you pressured by the multiplicity of entertainment options—to what extent has that affected you and caused you to respond?

K.F.: Well, anyone in the entertainment business is vying for that discretionary dollar. I mean, we're three-dimensional entertainment. You can't get that from a film, you can't get it from television, you can't get it from the internet.

The internet is now probably 70 percent of our business. It's done through the internet because the most logical thing to buy on the internet is a ticket. Makes the most sense and it's the simplest thing to do. We do have a relationship currently with TicketMaster, and it's quite good. They're wonderful at processing the thing. They make it easy and they have a huge amount invested in the software that makes it happen and makes the acquisition of tickets easier than ever. And we have Ringling.com, and you go there and you can acquire tickets there through our website. But 15 years ago, maybe it was 2 percent on the internet.

L.G.: But in terms of what you're offering in the shows, the content, to what extent have you had to high-tech up your productions?

K.F.: We have, and what's been great is the use of LEDs [light-emitting diodes] and video. So, for instance, when you go to Ringling Bros. and Barnum & Bailey today, in addition to what the live performers do, there is a video component that's used as scenic element. Sometimes it's used to give you a view that from the seats you can't see. So, for instance, we have in this show Over the Top, which is currently in San Jose, seven motorcycle daredevils in this globe of steel at one time, and you will see, because of a camera mounted on a helmet in there, their point of view of what they see when they do the act. You couldn't get a sense of that before, so we use the technology to enhance the experience. The other thing that we've done, which has proved extraordinarily well received, is an hour before the show, we have an all-access preshow. The public comes in, you've got your kids, you can come down on the arena floor, you can meet the performers, you can actually be up close and see an elephant painting a picture, you can understand all the animal behaviors that we do, and you get a connection that you wouldn't get otherwise. Now when you go see the show, you say, "Hey, I saw that performer, now he's doing this," or "I met this clown." And so there's more of a rooting interest.

L.G.: By the way, I should've asked this before, but are you insured?

K.F.: We do have our coverage through Lloyd's in the U.K. And what's amazing is that we have one of the best workman's-comp rates in the world because we have so few injuries. I don't know exactly what the differential is, but I know that we focus so much on safety and we have safety managers, they're going around, there are procedures for everything. We're in a high-risk business, but it's calculated risk, and the people are perfectionists. They rehearse, they train constantly, and they're well aware of what can happen.

L.G.: Did you ever, to your satisfaction, find out the cause of the accident that killed Dessi Espana?

K.F.: I believe it had something to do with a rigging situation.

L.G.: Now, you mentioned that this is not a business that really fits into sort of a corporate, public-company kind of thing, it's a family business. But are there any possibilities? Can you see that some big content company, like Viacom or Time Warner, might make you an offer of sufficient generosity for you to, say, "okay, let's do that"? And this time, you won't take it in stock.

K.F.: We're getting approached all the time. It's a great thing to be independent, and I think that I'm having too much fun. And we do fine, and we all make good money, but we have a level of independence. We have the ability to have creative expression, in all of our shows, everything we do. And if we decide we want to do something, and we want to spend a little more on the show, to give a little more quality or a better experience to the customer, we're not questioned, we just do it. It's a business, there is no question about it. But when I go out to any of the shows, whether it's Ringling Bros. and Barnum & Bailey or Disney On Ice or Disney Live, you see the reaction of the kids and the families, you say, now if I ever forgot, I absolutely remember.

L.G.: If somebody came in and said, "okay, we'll buy the business, we'll keep you on because we need you, you have the expertise." What about that? You could still go and travel around in your private jet or whatever.

K.F.: But you know, I would have to have a really good reason, and no one's given me a good enough reason to do that. It can't be just about money, because the motivation is to do more and to do better.

L.G.: What do you think a business like yours would be worth?

K.F.: I have no idea. It's worth what it's worth. I don't know—what do they say? I would say it's priceless.

L.G.: Now you know I have to ask you: You've gotten a lot of unwelcome publicity over some legal actions of various kinds, including a lawsuit involving a Washington freelance writer named Jan Pottker, and, of course, there's a federal court case involving animal-rights groups that's supposed to go to trial in October. To what extent does that kind of publicity need to be countered? Very few businesses get a huge 60 Minutes exposé and recover as quickly as you seem to have. But still, it's a business problem, is it not?

K.F.: Well, first of all, I'm not going to comment on the cases that are out there. In general, I think if you look at the animal extremists, two years ago PETA sued me and it went to court and it was a jury trial and the jury found that I was innocent of all the things PETA was claiming, and the fact is—

L.G.: You personally, Ken Feld, were innocent, but there was stuff in the court record that suggested people in your employ were infiltrating animal-rights groups. You had this guy Clair George working for you-

K.F.: Clair George was never part of this. Anyway, the fact is this—that they're animal extremists that have an agenda, and their agenda is they don't believe that we should eat animals, they don't believe in pets, they don't believe in the use of animals in animal research or to wear animals, and obviously they don't believe in animals in entertainment. So that's what their belief is. Our belief is, let's get real, there is no "wild" the way it may have existed 100 years ago, and the only way people are really going to see animals is in some controlled environment, and they're going to have to see the human-animal bond—and that's what it's about. What we're doing with the Asian elephant is the best work in the world. We have the only sustainable herd of Asian elephants in the Western Hemisphere. It's only through our Center for Elephant Conservation—that's only about reproduction, research, and retirement of Asian elephants—that the zoos or anyone else can really hopefully propagate this species in the wild—that there are only 30,000 of.

L.G.: And you, of course, dispute the notion that it's cruel to these elephants to have them performing in circuses just by definition?

K.F.: Lloyd, doesn't it fly in the face of all logic? These are the greatest assets that we have. The one thing I will tell you is that we spend $65,000 a year on every elephant, and this is for their entire life, the animals can live 55 to 60 years. We have 54 elephants, we have only on the circus units 21 elephants, so the rest of them at the center are either retired, they're breeding, or they weren't suited to go on the road, so they're there and we support them. And so why are we going to do something to injure or hurt these animals? Aside from the fact that it's a personal passion of mine. I love these animals.

L.G.: On this other thing, are you concerned that if the Pottker suit goes to trial—and I know it's been sort of rattling around the court system now for almost a decade—that it's going to bring out all these seamy stories again and cause you P.R. problems?

K.F.: Lloyd, all I will tell you is this: I will always stand up for what I think is right, and whether it's with a Jan Pottker or whether it's with animal extremists, I will do what I believe is right, ethically, morally and everything else. And I will tell you one thing, I have never broken a law. I do not intend to ever do that, I don't need to do that. And I think the great thing is—and people lose sight of it—if you're successful, people are always taking shots at you. We do the right thing every day, we create the best entertainment, we make millions of people happy, and, by the way, we also make a lot of money. All of those things are what we stand for and what this company does. And the rest of it? There's always something out there, I don't care who you are, what you are, you know? So people will continue to take shots; there are jealousies, it creates a story, whatever it is. We will stand up and I will stand up for what I believe is right. And we will do everything within the letter of the law.

L.G.: Just to change the subject, you obviously took the business that you had with your dad and you increased it exponentially. I mean, it's orders of magnitude larger than it was when your dad passed away. And I'm just wondering what you see in the future. Where is the future growth in your business?

K.F.: The future growth in the business is globally, there is no question about it. But also we just concluded a brand new 10-year deal with the Disney Company, so we will be presenting Disney On Ice, Disney Live shows, and other Disney productions at least through the year 2018. We started with Disney in 1981. It's stayed through every management in the Disney Company, from Card Walker, Ron Miller, Michael Eisner, Bob Iger, and whoever's there afterward, and that should tell you something. That it's about trust in what we do with their brand, and we know how to handle brands. We know how to protect them in the right way, and we know how to present live entertainment in a way like no one else does. I think that's really the vote of confidence and faith that Disney has given us, by extending and broadening our relationship. I mean, if you think about the number of people that come see our Disney shows, we're basically the size of a theme park for them.

L.G.: In terms of just revenue stream?

K.F.: In terms of bodies that come in—and we're unique visitors because typically we don't get the same person four times in a week to come to one of our shows, whereas if you go to Disney World or Disneyland, you may go two or three times, but they count you three times, so you're not necessarily a unique visitor in that sense. When we get our 25 million people annually that come to our shows, that's 25 million unique visitors for the most part.

L.G.: So your family is now in its third generation in this business. I know many of your performers are from multiple generations. Bello Nock is seventh generation. How many generations out into the future does the Feld family continue?

K.F.: I can only look to my daughters—they're the third generation. I'm going to let them worry about the next generation.

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Nassim Nicholas Taleb

Thu, 14 Aug 2008 04:00:00 GMT

Former options trader and hedge fund manager Nassim Nicholas Taleb is "the black swan"—a human incarnation of the sort of highly improbable but overpowering event that he investigates in his bestselling 2007 book of the same name. Like the strangely hued avian that was thought not to exist until 17th-century Dutch explorers discovered its native habitat, Australia, Taleb fits his own definition: 1) He lies outside the realm of normal expectations; 2) He has had an extreme impact, particularly in the world of finance; and 3) Many observers—journalists, admirers, and especially detractors—have been at pains to explain and categorize him after the fact.

SWAN SONG

On Business Dress:
"The guy in Silicon Valley looks wild, but he's less risky than a banker."
On the Tragedy of Economics:
"The structure of uncertainty in the world is vastly greater than we think."
On His Career:
"My problem is what my mother kept telling me: I'm too messianic in my views."

Taleb’s unlikely existence began 48 years ago in Lebanon, where he was born into a politically prominent, highly educated Greek Orthodox family. When he was 15, catastrophe struck in the form of the Lebanese civil war, an unexpected anomaly after 3,000 years of relative calm. He spent his war years reading in the family basement, hiding from the mayhem on the streets, and eventually received advanced degrees at Wharton and the University of Paris before going to work on Wall Street trading derivatives, currencies, commodities, and other complex instruments.

As a 29-year-old options trader at First Boston, he became rich on a single day—Black Monday, the Dow crash of October 19, 1987—when he had the foresight, or amazing good luck, to make tens of millions of dollars by shorting the market. Then one black swan followed another as Taleb, a lifelong non-smoker, was diagnosed with throat cancer. He beat the disease and in 2001 another black swan appeared when his first attempt at writing a book, Fooled by Randomness, was a cult hit and then a surprise bestseller. Today he is a principal in Universa, a billion-dollar hedge fund based in Santa Monica, California, but he spends most of his time as a much sought-after scholar—thinking, reading, writing, and occasionally giving high-dollar lectures.

In an exclusive interview last Friday with Portfolio.com—conducted as Taleb wandered, almost randomly, from his favorite French restaurant to his yacht club to a sidewalk café in the unnamed New York bedroom community where he lives—he shared his thoughts on the nature of risk, the ignorance of so-called experts, and the perils of boring bankers in suits and ties.

Lloyd Grove: You don't watch videos and you don't read newspapers. Why don't you watch videos?

Nassim Nicholas Taleb: The moving image doesn't have the aesthetic appeal of the written word. And I don't like people to watch images to get a representation of the world because it's going to be severely marred. If you see a plane crashing it's going to distort your statistical representation of the world. The press already has a problem in what it represents. They give you what can get your attention, so the press is not going to make you aware of the 40,000 to 50,000 car crashes every year that people die in—you don't hear about that. You hear about a plane crashing, you hear about a soldier dead in a war, because you have some emotional attachment to it. You don't hear of people dying of diabetes. You don't realize that this—this thing on the table, sugar—is killing more people than anything.

L.G.: Granted that videos are not an accurate statistical representation of what's going on in the real world, but why aren't you watching them?

N.N.T: I don't like it. My world is much, much more serene without audiovisual stimulation. That's too much. I understand the nature of how to cope with uncertainty in a world which is human. I'm a classicist. I live like a classicist. I think like a classicist. I don't like movies. I just read. I like reading. I like music, but I can't listen to music while doing something else.

L.G.: I don't want to invade your privacy, but do you allow your kids?

N.N.T.: Yeah, I don't influence other people.

L.G.: So if they say "We're going to go see Batman" —

N.N.T.: I don't tell people "Don't watch movies." There are plenty of good movies. I tell people don't get your representation of the news from television, because it hits you in a part of your brain, and the way it hits you is much more the story than if you'd read it. And if you read it, it's much more distorting if you read words than if you're reading statistics. When did I stop watching news on television? I never really watched television, even as a child, I never liked it. I grew up with a lot of books, and television for me was something that other people did. I never watched sports, so I don't watch sports. I bought a TV set when I was in school here at Wharton [business school at the University of Pennsylvania] and hardly ever turned it on.

L.G.: Because it reduces something to—

N.N.T.: A burning building is going to be a lot more anecdotal than a statement about what happened—and a statement about what happened is going to be a lot more anecdotal than statistics of what happens in the world to put it in context. To give you an idea, I go to Beirut all the time. If I watched television, I couldn't—it would sort of convince me to not go. The risk of death is nothing, right? I mean, it's minor compared to the risk of being killed in a car accident, you see?

L.G.: So statistically it's more likely to have a car accident and injure yourself in a Westchester bedroom community than in—

N.N.T.: Than in Lebanon. Iraq is the only place where you're vastly much more likely to get hurt or killed, but if you count how many people die every year in the States by car versus how many people die violent deaths in Lebanon, it's minor.

L.G.: And why don't you read newspapers?

N.N.T.: Newspapers I stopped reading in the '80s. You know how I know a subject is worth it? If you hear about it in a social setting. That's the best filter.

L.G.: So if you go to a party, they're screeners for you?

N.N.T.: In a normal society, people talk about events. By not having much exposure to TV, I'm necessarily faced with having a contextual reality around me which corresponds a lot more to the normal one, the social fabric and stuff like that. I do go online. You want to minimize your exposure to very bad uncertainty, and maximize your exposure to small events. If you live in Iowa, and are locked up in your house, even if you have internet, you're not going to get exposure to the world of ideas. Most ideas came from serendipity, and you want to maximize serendipity. How do you maximize serendipity? You go to parties, okay?

L.G.: But you know what the markets are doing.

N.N.T.: Same thing with the markets. I don't know what they're doing at any point in time except when they do a lot—because your brain cannot distinguish between small and big. We have so much evidence of that. Some events have massive consequences, and you should look at them. But if you look at the Dow and it moves a little, it's not even statistically significant, you cannot see it without some emotional reaction and some theorizing. So you want to theorize as little as possible. But today, I am interested in the market, because the euro had the biggest move in a long time. Today, I'm concerned. The euro moved a lot.

L.G.: Downward.

N.N.T.: Yeah, and I'm interested—so today it's information. When something is moving barely, it's not information. If you were to read the newspaper account of things, the discussion should be, because of the size of the move today, a billion times longer than the discussion you get on a regular day. It moved 3 cents. To $1.50-something. That is worth discussing when it happens once a year in the euro. If the stock market crashes, that's information. If it moves five points, it's not. So when you listen to radio, they're going to tell you in the same-length program whether it moved five points, or 23 percent. And the lengths of newspapers should be in proportion to the importance of the facts—and they're not.

L.G.: Is your interest in the movement of the euro today because you advise a hedge fund?

N.N.T.: It's too complicated, because I have—well, I can't talk about my investments. People are reading too much into what I say, so I'm not going to disclose everything I'm doing, see? People take a small piece of what I do and then read too much into it.

L.G.: That must be a weird phenomenon.

N.N.T: I know. But I'm a thinker about randomness and my ideas about randomness are the ones that matter, not what I ate for breakfast or whether I watch television.

L.G.: And this "hating ties" business, and I know you're being funny, but you distrust people who wear ties?

N.N.T.: It correlates rather well with incompetence.

L.G.: You lambaste bankers as boring people in suits and ties who pretend that they're very prudent but are in fact taking reckless risks without even understanding them.

N.N.T.: Exactly. If they wear a tie they look conservative. The guy in Silicon Valley looks wild, but he's less risky than a banker.

L.G.: So bankers are actually mad men in sane peoples' clothing?

N.N.T.: Exactly. One second. [Stares intensely into his BlackBerry.] Before we met, I was trying to do something...

L.G.: Are you trying to execute a trade? Are you losing money?

N.N.T.: I have receipts, I have a business. I get a lot of income from my books in Europe. I just want to make sure that I'm not bothered by that drop [in the euro]. I sell three times more in the U.K. than here. It sold 178,000 copies—115,000 in the last three months. But I've got income coming from different places, and I set up contracts where I'm paid in local currency.

L.G.: And the dollar is advancing against the pound.

N.N.T.: Not good for me. But what I do is, I allocate a portion of it, I keep it in pounds in the U.K.—I'm in London every month—and a portion of it in euros that I spend there, and then the rest I've got to hedge it...Have you read this book called The 4-Hour Workweek?

L.G.: No.

N.N.T.: It's similar to these concepts. I try to avoid drag-down work, so when I write, I don't write more than an hour in any given day. When I've done an hour, I make sure I don't write more. And I make sure I don't work hard because when you work hard, you sort of dilute yourself.

L.G.: You probably define "work" more narrowly than other people.

N.N.T.: Yeah, probably. Writing is not work for me.

L.G.: Yes, it almost made me hate you when you wrote in your book that it "wrote itself."

N.N.T.: Yeah, I only do things where there's a natural stimulation. I had no natural stimulation to sit in a meeting, so I would not sit in a meeting, and that has worked for me. I want to free up the time to think—that requires the details in my reading and my writing and thinking. Enjoyable activities. When I'm writing, if I get bored, I'll stop immediately, mid-sentence, that's it, I don't write anything that bores me...You have a copy of The Black Swan? Let me show you, I think I have it here, page 225, in the footnote. Read it.

L.G: [Reads] "Likewise, the government-sponsored institution Fannie Mae, when I look at their risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry, their large staff of scientists deem these events 'unlikely.'"

N.N.T: That's the central point. The rest is noise.

L.G.: You wrote that footnote in 2005?

N.N.T: Yes, but actually I saw their positions in 2003, when a very smart journalist, Alex Berenson of the New York Times, came to me and said, Can I show you the risk of Fannie Mae? When I saw it, I almost choked. [In Berenson's August 2003 article, Taleb was quoted as saying Fannie Mae and other major holders of mortgages and mortgage-backed securities chronically underestimate the odds of a big move in interest rates that could decimate the value of their portfolios, over-relying on computer models that don't account for rare but devastating events, i.e. black swans. "The fact that they have not blown up in the past doesn't mean that they're not going to blow up in the future. The math is bogus," he told the Times.] The core of my idea, the central problem here, is not to be a sucker for 1,000 days—not to be a turkey. See?

L.G.: In other words, just because you're a turkey and being well fed for 999 days doesn't mean the butcher isn't going to get you on the 1,000th day?

N.N.T.: Correct. The problem of The Black Swan is that people don't understand the place in the world that we know the least about, where our knowledge is the softest, are where the most charlatans exist—and that's pretty much predicting rare events. I'm talking about "Extremistan" [the complex real world, as Taleb defines it, where an unpredictable and devastating event can dictate the outcome, as opposed to "Mediocristan," a bogus model of reality favored by "charlatans" where no rare events occur and probabilities are distributed along a predictable bell curve.] That is my big problem. In 2003, I saw that they didn't have a clue about the risks. So I looked at the report, I made a statement in the New York Times that these guys don't know what's going on, and I was pestered by bankers completely. And then, right after, of course, the chairman of Fannie Mae [Franklin Raines] resigned, so they left me alone, but I later heard people on it wanted to sue me for defaming Fannie Mae. I heard that they were very angry about my statement that you can't manage the risks. But I wish someone had sued me because I would've had the chance to warn society about this.

The way that I look at it, people who live in Extremistan, not understanding that they're in Extremistan, build up positions on rare events because "they don't happen"—and businesses blow up when these events do happen. It doesn't take long to understand if you're exposed to it or not. Instead, they produce all these theories, there's a Nobel Prize in economics for them, and these theories don't work. So my request for people making bets against the black swan is to just tell us "We don't know anything." They'll come in with some scientists to produce numbers, but they're unreliable. In other words, if you're piloting a plane, tell the passengers, "I don't know the probability of this plane crashing." That's not what they did. The other problem I have is, most people don't realize that some businesses are positively exposed to black swans and some are negatively exposed to black swans.

L.G.: Like high-tech businesses?

N.N.T: Positively exposed. Some of them are both—like real estate. But what happened was that individuals get the upside, and banks lose the downside. Big business is exposed to negative black swans. Take banks. I wrote in The Black Swan that 193 banks lost 100 percent of everything they ever made on Latin America, but not to worry—that can't happen to other businesses, right? Now it's a big $1.4 trillion loss. Look at how much money that banks have made in history. These institutions are very good at losing every penny they make outside the risk-taking, like Citibank and all these firms. We're bailing them out now.

At a micro level, I don't have a lot of things to say, except, "Don't rescue banks." ... I think that the longer you defer the big non-bailout, the harder it's going to get for us, because banks aren't learning. Think about it. The biggest problem we have on Wall Street, the classical one, is "How many people do you know who made millions when their investments went wrong?" The Fannie Mae chairman, all these guys, didn't they make a lot of money? Did they pay back when they lost? They had a moral hazard, and you and I are financing it. I don't know what we should do in a particular case. In general, if there's some guiding principles, I think government makes things worse. Now that we face globalization, the government is out there to create more volatility and more instability because the nation-state is not a structure that's adapted to the modern world. So they still use bogus metrics.

L.G.: What about all these mortgages that are going into default? Does the government have no role?

N.N.T.: I don't know now what to do. I told people about the subprime problem before it happened, so I told people how to prevent it, by looking at risk of banks. And people for 10 years would make fun of me, for 10 years made my life miserable, more than 10 years, from 1994 on. Eleven years ago, 1997, is when I attacked these methods to evaluate risk, and people have been giving me a hard time. And now look at what was caused by their pseudo-science, "measuring" risk!

Economics is a tragedy for me. Because look at how the whole world now is designed according to some ideas that have not proved adequate. The whole financial system. We don't understand economic policy, do you realize that? Alan Greenspan lowered interest rates thinking it would help the economy. All it did was push banks to take risks—hidden risks. Do you realize that we don't understand globalization? Globalization increases Extremistan. That's one problem with this Tom Friedman guy—he [the bestselling author of The World Is Flat, which argues the advantages of globalization in the internet age] didn't seem to understand the very simple dynamics that globalization forces redundancy out of the system. And whenever you don't have redundancy, you have Extremistan. Things are way too efficient, so the smallest mistake blows up. We depend so much on the internet. Tomorrow, if there's a problem in Bangalore, we're toast for a long time, you see?

I'm on a committee at the Pentagon, [the Highland Forum, a study group on risk] and one of the founders of the internet is on it and all these people understand that we need more redundancy in the system to avoid a second crisis that may come from the internet, because we don't understand it. So, in other words, I have a lot of lists of what to do, you see, but they're all unpopular or unpleasant.

The structure of uncertainty in the world is vastly greater than we think. So let's stop playing the narrative fallacy. Take economics, for example. How many economists figured out that when people go to the store to buy products from China, they're raising the price of oil at the pump? How many people thought of that? They raise the price at the pump just by going there.

L.G.: Buying things from China, whose economy then has an exploding demand for oil?

N.N.T.: Yeah, people don't think of that. We don't live in a simple structure, and all these models are useless. How did the internet come about? From Ronald Reagan spending a lot of money for defense against Russians, his obsessive disorder with the Russians. Thanks to him I can call my mom for 8 cents a minute in Lebanon.

L.G.: An unintended positive outcome. Viagra is another example. [Pfizer scientists discovered the erectile dysfunction remedy while trying to develop a heart medication.]

N.N.T.: Beyond Viagra. Almost everything. A lot of things in medicine that we thought came by design in fact came by serendipity and were dressed up later as design. My point is what I call "rationalism" versus "empiricism." Rationalism is a platonic way of viewing the world—I call it "platonicity"—where you want to put the world in a box. But empirical reality is different. In my next book, Tinkering [due at some indeterminate point in the future, because Taleb refuses deadlines], I've made the case that medicine failed when it was platonic, because we're suckers for pseudo-experts that will kill you. We know that in the past, surgeons multiplied your risk of death by four times.

L.G.: If you went to the hospital in the 19th century, you were increasing your risk?

N.N.T.: Up until Semmelweis [mid-19th-century Hungarian physician Ignaz Philipp Semmelweis, who, over much official opposition, introduced hand-washing with chlorinated lime solutions], there was a high probability of a death sentence attached to giving birth in a hospital. But then again, life expectancy did not increase thanks to doctors. The big break didn't even come until 1940 when we had penicillin. So what I'm saying is we're suckers. We'd go to a doctor just to have the illusion of control. Likewise, we give ourselves to pseudo-experts simply because we believe these people help us.

Montaigne understood it. Don't ask a doctor if you need an examination. Montaigne said, "Don't ask a general if you need peace." Warren Buffett repeats it as "Don't ask a barber if you need a haircut." I mean, I'm not providing the answer because I don't want to sound like a charlatan, but in fact when I dig down, I wrote some rules. For my next book, I'm calling for more bottom-up tinkering, less top-down theorizing. I have a lot of things to say, but I'll talk to you about it when the thing comes out.

L.G.: Whenever that is, because you don't do deadlines?

N.N.T.: My minimum is three years from today to deliver the manuscript. With The Black Swan, they were very, very nice to me at Random House. They said "when you're ready." It's the same thinking with Tinkering. You've got to tinker with a book.

L.G.: I read that you got a $4 million advance.

N.N.T.: I don't know if it's true.

L.G.: Have you already put it in euros and you don't know what the dollar value of it is now?

N.N.T.: Some of it comes from euros, but I have no idea.

L.G.: Are the people who are running our financial institutions capable of learning from their mistakes and fixing them?

N.N.T.: No, and this is the problem with incentives. A C.E.O.'s incentive is not to learn, because he's not paid on real value. He's paid on cosmetic value. So he's paid to be nice to the Merrill Lynch analysts or the Wall Street analysts. So this is where the problem starts.

L.G.: What if you hear that a bunch of Wall Street folks got together and decided to offer some risk-management prescriptions so we won't have this kind of subprime meltdown again? [Last week, top risk managers at several Wall Street firms presented just such a report on the fiasco to the secretary of the Treasury.] Are you skeptical?

N.N.T.: I don't know, I just try to stay out of it, to just not lose my intuition. It seems to me that a lot of these people who shot the poor guy are now trying to medicate him. The very same people that were responsible for the crisis are trying to fix it. The problem is, I'm so suspicious of government, particularly the Federal Reserve, that I see self-serving stuff all the way, particularly in hindsight. I don't want to talk about the crisis in hindsight. I spoke about it in foresight beforehand, and that's it. So now I'm moving on to the next crisis.

L.G.: Describe to me the fallacy involved in coming at a crisis with hindsight and reinterpreting it and then coming up with solutions for it.

N.N.T.: Because then you get a Maginot Line problem. [After World War I, the French erected concrete fortifications to prevent Germany from invading again—a response to the previous war, which proved ineffective for the next one.] You know, they make sure they solve that particular problem, the Germans will not invade from here. The thing you have to be aware of most obviously is scenario planning, because typically if you talk about scenarios, you'll overestimate the probability of these scenarios. If you examine them at the expense of those you don't examine, sometimes it has left a lot of people worse off, so scenario planning can be bad. I'll just take my track record. Those who did scenario planning have not fared better than those who did not do scenario planning. A lot of people have done some kind of "make-sense" type measures, and that has made them more vulnerable because they give the illusion of having done your job. This is the problem with risk management. I always come back to a classical question. Don't give a fool the illusion of risk management. Don't ask someone to guess the number of dentists in Manhattan after asking him the last four digits of his Social Security number. The numbers will always be correlated. I actually did some work on risk management, to show how stupid we are when it comes to risk.

L.G.: You got your, as you put it, "fuck you" money from the 1987 crash of the Dow, when you were an options trader at First Boston. Did you have any sense that was going to happen? Did you position yourself against the possibility?

N.N.T: But that's not too relevant to my point, because a rare event for me is not an opportunity to make money. The whole point is you should tell people about rare events. A charlatan is the guy who tells you how to make money. The guy who tells you how not to lose your money is not a charlatan, because negative advice is much more robust. Look at the Ten Commandments—don't do this, don't do that. So I never play the charlatan, I never tell people to try to make money off rare events, I tell people to not rely on rare events.

L.G.: So then you set up a system with your own hedge fund?

N.N.T.: What we did is, I risk-managed portfolios for institutions by protecting them. You take the portfolio and then make sure that we're covered for a rare event. Typically you can't hedge it—but that's not what interested me. Mostly I wanted to be a scholar, and it took me about 20 years to finish The Black Swan.

L.G.: Right, and you're comfortable, you can obviously provide for yourself and your family.

N.N.T.: Listen, I would've been starving and it would have been the same. This is the thing. Everybody says I haven't changed, I'm still the same. My problem is what my mother kept telling me: I'm too messianic in my views.

L.G.: Has your mom been telling you that for a long time or just recently?

N.N.T.: More recently, because before she didn't think that I was going to, well, I was never going to be someone who plans to try and make a career. Listen, at age 15 I was put in jail for attacking a cop. That tells you something.

L.G.: But you no longer physically act out?

N.N.T.: No, no longer.

L.G.: When was the last fight you got in?

N.N.T.: Oh, with a cab driver in New York in '86. I won, he ran away, I tried to break his windshield with my hand. The fiancée of my cousin was getting in the cab, and he started driving as she's getting in. I told him "What are you doing?" He said "You guys take too much time to start," and started cursing. I said, "I'm going to take care of you, all right?" So I got out of the car and I chased him, got him on the traffic light, tried to break his thing. I almost broke my hand. That was the last time, in '86. But someone tried to kill me in the pit in 1992 [when Taleb was an options trader at the Chicago Board of Trade].

L.G.: He was losing money?

N.N.T.: Whatever it was, he said "Get out of this space, it's mine," and I told him to get lost. He got angry, in a state of rage, and he tried to strangle me. He said, "You've got to get out," I said, "I'm not going to get out." So he lost—he couldn't get me to leave.

L.G.: This comes from your having spent a childhood in Beirut in the basement reading books while shells were bursting overhead?

N.N.T.: Maybe, but this is a biographical fallacy. It's nice to write a little bit for context, but other people have had the same experience. No, I always say it the way it is, so I'm driven with a sense of duty to say it the way it is. I'm not interested when speakers' bureaus tell me, "They want your portrait." I'm not going to go give them my portrait. I have a sense of security, and it produces income, but it's uncompromising. It so happens that being uncompromising has worked for me so far—more than worked.

The point is, I don't give a flying damn about the public eye. I care about ideas, all right? So I cannot be divorced from my ideas. I have very strong ideas, coherent ideas, and I have a worldview and it's a worldview that is convincing to so many people that my problem is I'm not doing enough for that world view.

L.G.: So you don't feel like there's a slippery slope going from being a public intellectual to becoming an entertainer?

N.N.T.: For me it's impossible.

L.G.: But you're a very entertaining man.

N.N.T.: Maybe, but I'm not playing a role. If someone asked me for an op-ed, I wouldn't write it. Harper's asked me for an op-ed, "Can We Save Capitalism?" you know, and I told them, "Listen, no editing, these are my rules, this is the style."

L.G.: Did they do it?

N.N.T.: No, they stopped talking to me. But at this point, my books are read by more people than any journal.

L.G.: How many copies of your two bestsellers are in print now?

N.N.T.: Now I should have 700,000 of The Black Swan in all languages out. I have a contract for 27 languages, and both books together [Swan along with Fooled By Randomness] should be 1-point-some million copies. And 400 million people have read coverage on the internet. When there's a profile published, you count how many readers have the profile and you add it up.

L.G.: So you can track this accurately, you think?

N.N.T: Not accurately, but within 100 million.

L.G.: But you're not content, obviously, to be a prophet without honor in his own country—you want to actually have some impact on policy?

N.N.T.: I just have my ideas, but I'm not a public intellectual. I'm a thinker. In the end, the only thing that counts is the book. I have an obsessive disorder, it's not like I'm interested in my own welfare. Tomorrow if someone pays me a million dollars to talk about blueberries, I won't go. This is what I can afford. If you offered me a million dollars to talk about the weather tomorrow at noon, I wouldn't do it. No. And I usually turn down the ones that have a lot of people with ties. I have a thing about ties.

L.G.: Have you been to a shrink to find out what that's all about?

N.N.T.: It's simple heuristics. You want to see the people that are the most fake, that's why they're wearing a tie. But maybe there's some disorder, some hatred of ties.

L.G.: Some people have a fear of snakes. What's the Latin phrase for tie-phobic?

N.N.T.: Cravatphobia.

L.G.: I'm just curious, how much in lecture fees have you turned down?

N.N.T.: I turn down things all the time. I've definitely turned down $60,000 for something.

L.G.: Because they wanted you to talk on a topic that didn't interest you?

N.N.T.: No, because the crowd didn't interest me, I'd rather stay home and work in my library.