“Change is the only constant. Embrace it and turn it into opportunity.”
That was a key message Barbara G. Novick ’82, co-founder and former vice chairman of BlackRock, drove home when she delivered the Lewis H. Durland Memorial Lecture virtually to the Samuel Curtis Johnson Graduate School of Management community on March 2, 2021.
Novick has experienced and witnessed plenty of change since 1988, when she was one of “eight founders who had an idea” and launched BlackRock, a start up with zero dollars under management, to now, when BlackRock is a recognized world leader in asset management with nearly $9 trillion under management. “In many ways we’ve actually led the industry in change,” she said. “However, we’ve also evolved to meet the needs of a changing environment.”
In her address to students, faculty, alumni, and other members of the Johnson community, Novick spoke about how the asset management industry has evolved over time and strategies critical to BlackRock’s success.
Starting out with a simple business plan
A number of pivot points were critical to BlackRock’s success, said Novick. “Let me start with the original business plan,” she said. “It was so simple it fit on a child easel: We’re going to manage fixed-income portfolios. We’re going to advise companies with large fixed-income portfolios, such as insurance companies. We’re going to raise capital to invest in companies with fixed-income portfolios.” The founders focused on fixed income because they all had strong backgrounds in fixed income, including derivatives, asset-backed mortgages, and more.
“Today, BlackRock manages across virtually every asset class from fixed income to private and public equity markets real estate cash infrastructure and more,” Novick said. “And we’ve become a world leader in technology specific to asset management: We actually provide a trading platform for investors all over the world. We also provide our software to brokers and to custodians. So it’s really become a worldwide system.”
Key lessons for success
Novick outlined eight key lesson she deems critical to BlackRock’s success and gave examples to illustrate each one. Here’s a brief outline:
- Diversify: It provides stability. “As our clients’ needs evolved, we evolved and were able to keep those clients,” said Novick. “Over time, we diversified across asset classes, across client types (insurance, pensions, retail), and across geographies. Today, we have a global footprint and clients literally around the world.” Tastes change, regulations change, trends change over time, she noted. So having different solutions that work for different kinds of clients provided stability.
- Embrace change and turn it into an opportunity. When Novick saw that a regulatory or accounting change created a new problem for clients, she viewed it as an opportunity to provide a solution. She saw changes in leadership as an opportunity, too. “When there was a new CIO or a new head of fixed income, that change usually signaled a person who would have their own ideas and would probably make changes in the portfolio. I used it as a door opener to come in as a new voice and a new potential provider and found my hit ratio is actually quite good.”
- Stay alert to public policy and its implications. “Everyone needs to be much more aware of public policy and much more focused on how it impacts them,” said Novick. “Public policy dominates the headlines, whether it’s looking at tech firms and whether there’s going to be antitrust action or what direction the SEC or Treasury is going to go in. The intersection between business and public policy is growing. All over the world today, public policy impacts huge sectors of the economy—healthcare, energy, financial services, and much more.”
- Harness the power of technology. “Technology is really important,” said Novick. “If the technology you need doesn’t exist, you build it.” She recounted BlackRock’s decision to create Aladdin, software designed to help portfolio managers assess risk exposure. “We developed our own technology because the technology available in the marketplace wasn’t really up to par,” she said. The decision to build software and to share it with others, including competitors, was controversial. Today, Aladdin provides BlackRock with a substantial, steady revenue stream.
- Align your marketing plan with your business model. When BlackRock was a still a young company, Novick said, “there wasn’t a lot of reason to spend money on advertising—we were focused on retail only through brokers and on institutional investors on a direct basis.” That changed after BlackRock did an IPO and became a public company. “We had to start adjusting and over the years we went from many different iterations to today, where we have a really robust social media policy, as well as advertising sponsorships and more. As the business evolved, we began to communicate more directly with end investors, including retail.”
- Include a strategic vision and an integration plan in your acquisition projections. “Too often, people look at the financial measures [in an acquisition] and they don’t really understand how to integrate the teams and the products,” Novick said. “Just because something looks good on paper and the finances work, and you can see how you could take out costs or increase revenue, the numbers aren’t going to turn out to be whatever it is you model if you don’t have a plan that addresses the people and the products.”
- Keep your focus local as you grow globally. “As our non-U.S. business grew, we added offices in Europe and in Asia,” said Novick. “Over the last decade, we’ve been on a march to become what we call ‘more local.’ Pick any country: Having people who can conduct a meeting in the local language is a game changer. There really is no comparison; I’ve seen it done both ways. Having that local presence, being involved and doing philanthropy in the local communities, is very important. And, of course, local regulations and local regulators: Every country has its own national regulators and a different set of rules. You must be local to be completely up to speed on those rules.” Novick also spoke about managing people in every possible time zone. “There was no time of day when you could meet and really accommodate everyone,” she said. “So I started to either have two meetings—one optimized to the U.S. and Europe, one optimized to Asia—or I would rotate them to try to share the pain, as opposed to having one group always take the pain.”
- Recognize the importance of sustainability factors for good business over the long term. “About 20 years ago, we started talking to clients about socially responsible investing (SRI for short),” said Novick. “And at the time, there was a lot of interest in establishing portfolios that would reflect their values. For example, ‘I’m a healthcare institution and I’m really concerned about the impact of tobacco on people’s health; I want a tobacco-free portfolio.’ Or: ‘I’m a religious order and I’m totally against war; I want a portfolio that doesn’t include defense stocks.’ The X of what to exclude could be anything, but it reflected that entity’s values.
“Today when we talk about sustainable investing,” Novick continued, “we’re much more focused on how environmental and social issues impact the value of the company, either imparting value or destroying value. At the end of the day, I believe, they all roll up into governance factors: Do I have the proper governance, am I thinking about these issues as a manager?” Companies that build reputations for their environmental and social responsibility reap substantial benefits, including retaining customers, reducing turnover, and making yourself welcome in the local community. “How you treat the communities where you live and work does have long-term implications for your company,” said Novick.
A Q&A with Johnson students followed Novick’s talk.
Johnson’s Lewis H. Durland Memorial Lecture was established in 1983 in memory of Lew Durland, treasurer emeritus of Cornell, who served as the university’s chief financial officer for more than 25 years.