In 2014, Ruth Porat was still working as the CFO at Morgan Stanley when she sat down with Jeffrey E. Garten, dean emeritus at the Yale School of Management, for a candid discussion about the 2007 recession and what it takes to lead in a major financial crisis.
The lessons Porat shared during the interview show not only why she is widely regarded as the top female banker in the world, but also why her $US70 million appointment as Google’s CFO was such a smart move by the tech giant.
In her interview, Porat shared four insights every company needs when dealing with a major financial crisis that is moving in real-time and affecting all aspects of the business.
Liquidity is oxygen for a financial system.
Banks and financial systems in general need a good amount of liquidity. According to Porat, “Liquidity is oxygen for a financial system.”
While she admitted that “capital is the first line of defence,” she also noted that “if you don’t have ample liquidity and it’s not durable, in times of stress as you’re looking for liquidity you’re forced to sell assets at declining prices, which then eats into your capital position, so it becomes this very, very negative cycle. There’s no question that liquidity is sacrosanct.”
You need courage based on experience and instinct.
Porat explained that leadership isn’t just about experience but rather, “courage based on experience and instinct.”
“Events move far too quickly during a crisis and what you’re dealing with is typically, as we called it back then, the ‘least-worst option.’ There are no good options in the midst of a crisis. And so having experience in capital markets [and] having a team with experience in capital markets enables you to be nimble, creative, try different approaches, and try and optimise within this bucket of the least-worst,” she explained.
Time is your enemy during a crisis.
Porat credited Hank Paulson with a big part of her strategy: “Paulson once said you have to have the will and the means, and too often by the time you have the will you no longer have the means.”
She talked about the crisis in Greece, which “should have been a small, obtainable problem.” Yet, “because there was no will to deal with it upfront, [it] spread. Recognising that time is your enemy is very important.”
Effective communication requires clarity.
Communication becomes increasingly important when you are dealing with a “least-worst” set of choices.
“There are some tough choices that need to be made. Trying to provide clarity to all core constituents who need to make those choices is key,” she said. “Clearly not overselling because these situations unravel quickly and credibility is binary, you can’t lose it because you can’t regain it.”
“Again communicating where you are going, that you have enough confidence conveyed so that there are tools you can use so choices can be made,” she added.
You can watch the full Yale University interview here.
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