In Good Company with Nicolai Tangen - London Stock Exchange Group CEO: Leadership, CEO pay, and busting silos

Episode Date: February 21, 2024

Founded in 1801, LSEG has been at the forefront of financial markets for centuries, surviving world wars. Now it’s a global financial powerhouse. David Schwimmer, their CEO, is a New Yorker with a rich academic background from Yale, Harvard, and a 20-year tenure at Goldman Sachs from Moscow to London. Join us for an insightful conversation with David on navigating LSEG through the complexities of modern financial markets and shaping the future of global finance.The production team on this episode were PLAN-B's Pål Huuse and Niklas Figenschau Johansen. Background research was done by Sigurd Brekke, with input from portfolio manager Michael Wassermann.Links:Watch the episode on YouTube: Norges Bank Investment Management - YouTubeWant to learn more about the fund? The fund | Norges Bank Investment Management (nbim.no)Follow Nicolai Tangen on LinkedIn: Nicolai Tangen | LinkedInFollow NBIM on LinkedIn: Norges Bank Investment Management: Administrator for bedriftsside | LinkedInFollow NBIM on Instagram: Explore Norges Bank Investment Management on Instagram Hosted on Acast. See acast.com/privacy for more information.

Welcome to In Good Company. I'm Nikolaj Tangen, the CEO of the Norwegian Submarine Wealth Fund. Now, today I'm joined by David Schwimmer, the CEO of Elsec, which contains the London Stock Exchange. Now, this company has been at the forefront of financial markets for centuries. It's now a global powerhouse. David is a New Yorker with a really interesting background and we'll explore some of that. But David, I'm so happy that I managed to convince you to come on when we last had dinner in London. Nikolaj, it's a pleasure to be here. Thanks for having me. Elseg contains London Stock Exchange, but it also does a lot of other things. So what

does the company actually do? Let's kick off with the basics. So we are one of the world's, or I'll say the world's leading financial markets infrastructure and data provider. We have a number of different businesses that serve customers, buy side, sell side, financial institutions, and corporates, governments across the trade life cycle, across the value chain. So just in terms of the specific businesses that we are in, we have data and analytics. We're the number one provider in the world of, for example, real-time financial data. We have an index business, FTSE Russell, which is one of the world's leading index businesses. We have a risk intelligence business, which provides

the leading content set for what banks use for background checks and KYC AML. You put all those businesses together, that's our data and analytics offering. That's roughly 70% of our revenue. Then we have capital markets execution venues across multiple asset classes. So you touched on the London Stock Exchange, a leading execution venue in equities. touched on the London Stock Exchange, a leading execution venue in equities. We have FX execution venues, both dealer to customer and dealer to dealer in foreign exchange. And then we also are the controlling shareholder of TradeWeb, which is one of the world's leading electronic

execution venues for fixed income. Wow, it's a lot to keep track on. So what are the big macro trends that drive your business? So the inflation situation that we've had over the last several years, moves in interest rates, all those kinds of dynamics have an impact on our business generally to the positive side. In other words, volatility tends to be fairly good for our business. But if you take a step back from that and get your question on the different trends, data and demand for data. Obviously,

a lot of discussion about AI these days and how does that play into what we're doing. The quality of, for example, large language models is entirely dependent on the quality of the data that goes into them. And so there's more and more focus on data quality. And given what we do, given our focus on data integrity, data lineage, data auditability, that's proving to be a big driver for us as well. I think some of the geopolitical dynamics also, they tend to lead to more volatility and they tend to also lead to more demand for data as people are trying to navigate the global situation.

We are seeing a bit of a trend when it comes to UK companies moving to the US. Why do you think that is? Well, there's a stronger narrative around that than the facts would actually suggest. And I think it's important to recognize that. But having said that, we have seen a few moving to the US. There are a couple of things driving that. I think it's a little bit different in each case. In one or two cases, it's been because of a sense of most of the market being in the U.S. for certain companies. In some cases, it has been, and people don't like to talk about this too much, but in some cases, it's been because of compensation standards in the U.S. So easier to pay higher salaries. So yes, the salaries for executives in the US tend to be, in some cases, a multiple of what they are in the UK. So if you're a fintech

or biotech company that's come out of one of the great universities in the UK, and you can list in London, or you can list in New York, and you list in New York, you might get paid three or four times more than you get paid in London. And in London, you might be criticized for it because of some of the cultural elements here, which we should probably talk about. That can create a dynamic where people are more attracted to the US environment. There are a number of factors, and I think that the pendulum will swing. There are a number of factors that make the UK, frankly, a much more attractive listing venue. But there is a, I'll call it a cultural discussion going on right now in the UK about this particular issue. From your standpoint, how have you seen the backlash against ESG considerations? So I think a lot of the underlying trends or changes that are included in this unwieldy acronym of ESG

are still moving forward. I think ESG as a concept is just becoming more sophisticated. I don't see, there's the politics in the US around climate and the sort of anti-woke dynamic in certain aspects of US politics. I think if you break it down in terms of the elements of what goes into ESG, climate continues to be an issue. And although people are talking about it less, I think companies are still focused on it and recognize it's a multi-decade challenge and we have to figure out how to work through a transition. I think on the social and governance, most companies are focused on creating an inclusive environment in the interest of attracting employees. It's an employee

value proposition. And so I think the political noise or backlash will continue sort of in its own sphere. But if you are a company looking to attract talent, you want to make sure you have an attractive environment. David, moving on to CEO pay, which is something we feel pretty strongly about. What kind of reflections do you have when it comes to CEO pay? So from our perspective, and this ties in importantly with the notion of London as a global financial center, we think that it needs to be globally competitive. And that then quickly gets into a discussion around what's going on in the U.S. Is the CEO pay in the US

excessive? Is it excessive? I would say there are some examples where you look at numbers and you say, why does someone need to be paid that amount for what they're doing? Fundamentally, it's about creating value for shareholders. That's how I think about it personally, and that's how we think about it conceptually. But we operate in a global market. And so whether it's CEO pay or whether it's pay for senior executives, we have been bringing in a lot of talent as we've been transforming LSAG. And a lot of the talent that we have been looking at is working in the US. And we need to make sure that we can compete in terms of attracting that global talent. I think that

applies to us, but that applies to companies across the UK. And I think there's needs to be a, there's a cultural aversion in the UK. And this, you see this in the media, you see this in some of the proxy agencies, and a very different standard to pay in the UK versus pay in other jurisdictions, particularly in the US. And so we have been involved in a growing dialogue on this topic in the UK, because I think it's a very important element to making sure that the UK continues and London continues to remain globally competitive and attracting world-class talent. Do you think American CEOs are better than European CEOs? I would not make that generalization, no. Speaking as an American, but I don't think I can make that generalization, no.

No. But certainly when you look at the pay difference, you would have thought there'd be a heck of a lot better, right? If the pay difference was the indication, you would think. I do think there are some cultural differences between American corporate culture and UK corporate culture. What do you think is the essence of the difference? I think in the US, success is more celebrated and failure is more tolerated. And I think there is greater risk aversion in the UK and a sense that it's better to avoid failure and take less risk in the UK. And there's less celebration of extraordinary success in the UK. Well, you should come to Norway and visit.

I imagine it's different in many different cultures, but in terms of that kind of comparison between the US and the UK, and I've certainly noticed the difference in my time here. Yeah. Do you think shareholders actually have an impact here and what they say on CEO pay? I mean, we've been vocal for a long time. It's not really moving. Well, I think we pay attention to it. I can't speak for others. We certainly pay attention to it. I think, as I mentioned earlier, I think it's about aligning the pay of executives with the shareholder experience. And I would say it's important that that is aligned over the medium to long term. And I think within the construct of

what I was saying about global competitiveness, I think it's important to be able to compete on a global stage and attract talent globally. But within that construct, I think the UK market, people pay a lot of attention to that. And I would say perhaps so much attention to that when these differential standards are applied across geographies, it makes it hard to attract talent from the US. Moving on to data analytics, a huge part of your business is in this field.

How will AI change your business? So we are embedding AI in a number of different parts of our business. It's a capability that we have been working with in a few different areas for a while. that we have been working with in a few different areas for a while. And whether it's improving our operations, improving our customer service, improving some of the customer products. Let me give you a couple of examples. We get over a million customer queries a year, given the breadth of our product offering. We get questions about all kinds of things. So someone may call us up or email saying, how do I get pricing? And then do a chart for Indonesian versus Malaysian government bonds. That's something that what we're doing now, we're using basically large

language model capability to answer that question for our customer service reps. And as that model gets better and better, we are going to expose that directly to the customers. And so that's one example. We have a due diligence business that does due diligence reports for our customers. One of the complaints we got about the product was that the reports were not written well enough. The English writing was not good enough. We now have those being written using LLM capabilities, makes the actual writing much better. And then we have the people going through the reports who might, English might not be their first language, but they're fact checking them and making sure that the quality of the data in them is accurate and better. So those are a couple of examples. We're of course embedding AI functionality in the different products that we're building with Microsoft, which is going to bring a whole

new capability to what has historically been, I'll say, a fairly clunky space in terms of user interface, whether that's desktop products or others in the financial sector. So what kind of functionality will you have now? I'll give you a specific example. We are rolling out a product called Meeting Prep, doing this with Microsoft. What will that be? On your screen, you'll have a little button. You click on the Meeting Prep button. It opens up a box. You input the name of the person you're meeting with and maybe the company she's from. And then you ask for the meeting prep memo. Within 15 seconds or so, it will pull up and craft a memo, however long you want it to be, based on public data, financial data, research

data, corporate data from us. and then using some of the AI functionality, pulling all the data that you make accessible to it from your email, your files, your CRM system. And I think we all know in these various industries, when you have a meeting with someone, you may have someone on your team preparing that kind of memo over the course of a few hours. And this will be ready in 15 seconds or so. And if it doesn't have everything you want,

or if you want it to refocus on a certain new area, you can just ask it to spend more time. It would be pretty handy for my podcast preparation. It would. The use cases are kind of amazing when you think about it. David, we touched on corporate culture. What have you done with the corporate culture at the LSEG? Culture has been a big part of the change that we have been going through.

So when I arrived at LSEG, in many ways, it was a collection of great assets. It was not really operating as an integrated company. And so really from day one, or actually I'll say three months in, because I spent my first three months just talking to people and learning my way around and understanding a lot of the issues. I was very focused after that, those first few months, I was very focused on creating a common culture for the organization. How would you do that?

Well, you have to define it in terms of what your aspiration is, what your intent is. So at LSEG, I mentioned it was a collection of assets. We had some great businesses, but they were operating in a siloed way or a segmented way. So we had to make it clear that we wanted people to operate in a more connected way and a more integrated way. We had an environment where in certain parts of the business, people were very comfortable operating the way they'd always been operating and it had been fine. So we were very focused on creating an environment where people were willing to change that and were willing to disrupt themselves. And then we also had parts of the

business that were operating spectacularly well. And then we had other parts of the business that were really more comfortable with mediocrity, to be blunt about it. And so we talked about the fact that we wanted to raise the bar across the organization. Uh, this was all before we went through a significant acquisition of a business called Refinitiv and that added a significant level of, uh, challenge in terms of creating a common culture. But how do you go about it? I mean, you can't just say, hi guys, uh, now we're going to work harder and really lift the bar and we're all going to make a lot more money. I mean, you can't just say, hi, guys, now we're going to work harder and really lift the bar and we're all going to make a lot more money. I mean, what specific did you do?

You have to model it at the senior leadership level. You have to talk about it all the time. You have to embed it in all the different processes that you have. And that means you have to evaluate people on whether they are living up to your cultural aspirations. So one of the processes that we went through this past year was an exercise of really engaging the whole organization in talking about what are our values at Elstig. And we had a massive survey and we had focus groups, et cetera. And our people came up with the values of the organization. And that's an important underpinning.

It's a real foundation of our culture and making sure that our people are living in line with those values. If you think about what is culture, it's the rules of behavior for an organization, often unwritten rules. You spent a lot of time in Goldman Sachs. Is the culture at Elsec different from Goldman Sachs? Or are you aspiring to bring the Goldman Sachs culture into Elsec? Very different cultures. There are parts of the Goldman Sachs culture that I think I have been trying to bring a little bit more into at El Seg. Such as?

Well, so in my, I think it was, I had only been at El Seg a couple months and I was visiting the Paris office of El Seg and someone raised the question, what did you learn at Goldman Sachs that is helpful for us here at LCHSA? And I said, that's really interesting. In my 20 years at Goldman Sachs, no one ever asked me about their specific legal entity or operating unit. And I think that has been an important part about creating a more connected LSEG in terms of making people, whether they're in Paris or Tokyo or Cape Town, and we operate all over the world. So how do you build down those silos? A couple of things. And when I arrived at LSEG, we didn't have a common review process. The reviews were done within each business unit. And the head of the business unit would make decisions about his or her people.

And that was that. We have now created a common review process across the organization. We calibrate across the organization. We've created a group of senior leaders, basically our top 100 people. We get them together once a month. So they all know what's going on across the organization. We have done a number of different structural things like that to make sure that people are thinking across the organization. We have thought about, do you embed it in your compensation structure? We haven't actually had

to do that because it's actually working in terms of people in one part of the business actually helping introduce someone in the other part of the business to a strong customer relationship. But you have to model it and you have to really focus on embedding it. And it's not quick. It's a multi, multi-year process. So what kind of people do you promote to achieve this? You have to promote people who are living that culture and living those values. And it's also, it's been another interesting change for the organization. We historically have been in an organization of very impressive subject matter experts, given the kind of business that we are in and the importance of expertise in our business.

And the amount of subject matter expertise within El Seg is extraordinary across a broad range of aspects of financial markets. And one of the things that we've been very focused on over the last few years is, in some cases, taking those subject matter experts and making them, helping them, training them, and turning them into leaders of people and leaders of businesses. And in some cases, we've also been bringing that talent in from outside. So a big focus on the development of our talent. How easy is it to make a sub-expert into a general leader?

Not easy. No. Not easy. But it's a really interesting debate. I mean, we, of course, have it here in the fund as well. We got some incredible experts. And many people like to be led by experts,

to have the credibility and so on. They love to be led by experts. It's a really two-sided discussion, this. And frankly, there are some people where they have, and there are some roles that are right for people who are subject matter experts, but may not be great people leaders. That's okay. But you have to have the right mix. And importantly, in the roles that require leadership and require real management of teams and require the development of talent, you have to make sure that the people in those roles do have those skills. Now, to make this all tick, what is your leadership philosophy? To bring in great people or to have great people on my team, to get them aligned around the strategic direction,

and then to give them a lot of running room. And then I like to periodically drill down into the details of certain areas, not as a micromanager, but more just because I like knowing what's going on. And I like getting into the specifics of things. But as I said, I'll do that, not in a micromanaging way, but understand what's going on and then pop back out. Are you sure you're not micromanaging? I think so, yeah. That has not been an issue that has come up in my reviews.

Now, the CEO of Goldman's said that we had him on the podcast that leadership is to take people where they don't want to go. Where are you taking people at Elsec where they don't want to go? I think a part of leadership can be taking people in a new direction. I'm not sure it's necessarily where they don't want to go. It may be where they didn't know they did want to go. And so I'll give you an example. When we acquired the Refinitiv business, so this was an acquisition that we closed on at basically the end of January 2021. And at that point, Refinitiv had about 25,000

people. LSEG had about 5,000 people. So it was a massive acquisition for us. The Refinitiv business was growing at 1% or 2% a year on the back of a 2% annual price rise. And El Seg had, prior to that, had a strong track record of high growth. So there was an enormous question in the marketplace, and frankly, within El Seg, how do we take this massive business and get it to change and grow? And so there's a lot that we went through to do that. We now have that business growing at attractive rates as of the last quarter, about 7% growth. It's a massive change over the last few years. That's something that we had to change a lot of how people operated and a lot of how that organization worked. And there was some resistance, institutional, bureaucratic, but we now have people incredibly excited about the direction that we're going in. Leadership is more about communicating where you're trying to get people and then showing them how you're going to get there than taking people where they don't want to go.

When you make a big decision, how important is gut feel or pattern in the context of having a really good understanding of the situation. And so you're never going to have perfect information. And I think in most of these situations where we're dealing with complex decisions or complex systems, situations where we're dealing with complex decisions or complex systems, you often have to make a judgment call. I'm very comfortable making a judgment call, you know, or using gut feel, if you will, in a situation where I feel like I understand the broader situation and understand the underlying drivers. I think the notion of making gut feel in a situation that you otherwise don't know much about or don't know enough about can verge into the realm of reckless.

But I think you absolutely have to make some judgments with imperfect information. And that's effectively whatever you want to call it, judgment. Gut feel, you have to exercise that. And you have to be willing to do that. And you have to be willing, frankly, to make mistakes. And I think if you go into a decision process knowing that you're going to make some mistakes, you want to make more good decisions than bad decisions, but you got to keep moving forward, that's okay. How do you deal with mistakes? than bad decisions, but you got to keep moving forward. That's okay. How would you deal with mistakes? Try to acknowledge them openly and address what the issues were, sort of lessons learned. You know, we have a great process internally within LSEG where, you know, if there's a problem, if there's an outage, if there's an issue, you know, we do incident reviews. We try to do lessons learned.

We try to track the serious incidents, but we also track the less serious incidents because they're the ones where you can learn a lot from and make sure that you address issues before they become serious incidents. And this is another aspect that we are really building into and embedding in our culture because El Seg, pre-Raffinitiv, a strong risk management culture. Raffinitiv came out of Thomson Reuters, which was a media company and views itself as effectively a media company. There was very little concept of risk management in the way that the financial sector thinks about risk management in the way that the financial sector thinks about risk management. Is that good or bad?

I think it was fine for what they were doing before. And then it was something that we had to address in terms of integrating it into LSEG. David, I'd love to end with some personal questions. How do you deal with setbacks personally? I think you just have to recognize it's all part of the game, if you will. Not that life is a game, but setbacks happen. And what's been your main setbacks in life? I would say things go wrong all the time, uh, from a career perspective,

you know, it's funny. Um, you asked earlier about Goldman Sachs. I think I must've applied to Goldman Sachs three times before I got a job there over the course of several years. And, uh, so that, that's just an example of, yeah, setback. Okay, you didn't get it. Jack Ma applied to Harvard 10 times. He never got in. You did actually get into Harvard. I did for law school, yes. I think, but it's just the point of like setbacks are part of life.

And you have to sort of assume there will be setbacks and you keep going. And, uh, can you get discouraged in certain things? Or if, if there's something that you're going for, that's just not realistic and you, you sort of change direction, that's okay. Um, but I think, um, it's, it's something that you have to, you have to expect. And then it's sort of a question, what's your personal resilience? And do you want to just keep trying? Do you want to keep going? Or do you change course? How important is your personal network?

I think, huh, interesting. You know, when I got to the UK, I was not a part of the network here at all. Are you now? I have, you know, I've gotten to know more people and more, gotten more embedded in the community. And whether that's from a government perspective, the corporate world, the media world, and have built more and more of that network. world, the media world, and have built more and more of that network. I think networks are important and helpful. And I think it can be an important part of how someone can develop it or rise up through organizations. develop it or rise up through organizations um and i think a lot in this world for good or for bad is based on personal relationships uh and so it is important to build those relationships and what's what's the key to to doing that to building relationships yeah i think look Yeah. I think, look, everyone's going to have their own style. Um, my style is to be

straightforward. Um, try to be clear. Uh, I think I am, you know, I believe in decency, if I can put it that way. Uh, I think it's important to treat people well. Humility is really important to me. I don't have a lot of patience or interest in dealing with big egos. So those are some of the areas that, in terms of how I approach relationships, I do think it's more important to be respected than liked. in terms of how I approach relationships. I do think it's more important to be respected than liked. How do you avoid becoming a big ego?

I think you just keep your feet on the ground. And a partner, perhaps. Yes. They don't care how important your job is or how people treat you at work. Uh, and they're, uh, they've got their own issues and their own needs. So, uh, I think it's, it's just a value set in terms of, uh, it's a really interesting question. Um, I think modesty and humility is, is, uh, it's just an important way of dealing with people. I don't think there's a justification. That is kind of how I'd answer it. There's no rationale or justification for someone to have a big ego. Um, that seems almost like it's a,

it's compensation for insecurity is kind of how I think about it. Yeah. How do you relax? Compensation for insecurity is kind of how I think about it. How do you relax? Like spending time with my family. I like getting exercise and I love reading. What do you read? All kinds of things.

I love reading histories. I like books about how people think. So a lot of nonfiction. I'm almost finished with a relatively new book about the Japan War Crimes Tribunal called Judgment at Tokyo. Really interesting. But I love reading. I also like just reading current events,

reading articles in different publications. Favorite publication? Oh, I'm not sure I would name a favorite. I read a few different newspapers, a few different magazines. I don't know if you do endorsements here on your podcast. And David, last question. What is your advice to young people? Don't set your own limits. I think in so many situations, people don't even go for something

because they're scared they won't get it. And that is such an unnecessary limitation on what people might go for. So I think that's really important. The environment will make sure there are enough limitations. Exactly. The environment takes care of that. So you shouldn't add to it yourself. Very good. David, there seems to be very few limitations for Elsec. We wish you all the best. And it's been really fantastic to have you on. Big thanks. Thank you, Nikolaj. Pleasure to be here.