UChicago Davos 2019: "Leading Change" — Satya Nadella, Raghuram Rajan, David Rubenstein, Zhang Xin

- Good afternoon everyone. For those who don't know me, I'm Bob Zimmer, president of the University of Chicago. It is a great pleasure for me to welcome you to our annual event here in Davos. This event has two parts, we have a panel every year, overall I think they have been very interesting and I hope they will be again today; and then we have a reception. There will be a lot more people here and we hope you all stay and enjoy yourself after the panel. Now, at the event that will take place a little later, I will say a few words about what happened and is happening at the University of Chicago.

I'm not going to do that now so we can jump right into this discussion, but now I'm going to sit down and ask Madhav Rajan, dean of the Booth School, to come up and say a few words and just quickly introduce the panel. Thank you. (crowd applauding) - Thank you. Thanks Bob. Good afternoon everyone. On behalf of Chicago Booth and the University, it is my privilege and pleasure to invite you all to this panel discussion on

leading

change

. It's great to be back here after our economic forum, it's great to collaborate with the university on this program.

I wanted to extend my appreciation and gratitude to the incredible group of panelists who I will briefly introduce in just a couple of minutes. I wanted to give you just a few updates about the school that I think you would be interested in as friends of the school, friends of the university. Chicago Booth, as a school, its mission has remained constant and unwavering through the years. It is about producing knowledge that has a lasting impact and educating the world's current and future leaders. I am pleased to report that the school continues to have incredible positive momentum on both sides of this mission, and this is due to our outstanding faculty, our staff, our students, and also in large part to our incredible group of alumni.

We currently have 53,000 students in more than 120 countries as a business school and they do great things for us. In terms of brief updates, I think the school had a great year of teacher recruitment, probably the best ever, so we hired 18 new teachers for the current academic year and five more who will start in the next academic year , which is the most we have hired. These were in the most competitive academic areas, economics, finance, marketing, etc., and we did phenomenally well at the junior level, but we also made some key senior faculty hires; and the one I mention in particular is our hiring of Sendhil Mullainathan from Harvard University.

A recipient of a MacArthur Genius Grant for his work, Sendhil has done incredible work in a wide variety of areas, including poverty, finance, behavioral economics, and machine learning; and his appointment will have a huge impact on the school in the field of data science, which is a big priority for us. So Sendhil right now is teaching an AI elective at Booth to students for the first time and is putting together a new center for us that will focus on the interface between human and machine intelligence, which is a key area for a we. Our faculty continued to do amazing things and gain great recognition, and you have all heard of the Nobel Prizes our faculty won.

So the Booth School, throughout its history, has had nine Nobel laureates, including three who are currently active on the faculty: Eugene Fama, Lars Hansen, and Richard Taylor. Last year when I was here, I joked that that's three more than all the other business schools combined, which I have to modify slightly. In December, one of the 2018 prize winners was N.Y.U Stern-affiliated Paul Romer, but Paul was a math student at the University of Chicago and a PhD in economics from Chicago, so I think we're still OK. (crowd laughing) Another distinction I wanted to mention, in the same vein as the Nobels, is that just a couple of weeks ago, one of our faculty members, Ralph Koijen, won the official Black Prize for

2019

.

This prize is awarded every two years to the best financial economist in the world under 40, so it's phenomenal that Ralph won. It is also surprising that this award has only been awarded eight times in its history. Four of them were won by Chicago Booth professors. The first winner was someone sitting here, Raghu, so the great faculty of finance continues at Booth. A couple of other things, one of my goals as dean, Bob would almost call it a KPI for me, was to better connect the school to the university, and I think this is something we've made great progress on.

One of the big

change

s we introduced this year, starting in September, is that we have now introduced a new university specialization in business economics. So this is taught jointly by the Department of Economics and the Booth School of Business, and it's in some ways the biggest change in terms of Booth and his involvement with the university in over 60 years, which is the last time Booth had such a large turnout. presence there. So the classes we've offered in that area have been incredibly successful to date, and it's very likely that in the next few years, this may be the best major, or one of the best, at the U of C for undergraduates. . .

On the student side, the school continues to perform well, the quality of students is at an all-time high, as is diversity. The incoming MBA class was 42 percent women, which is the highest level ever recorded in our history; and as a school, attracting and producing the best students is the most important priority for us. That's why we're preparing to launch a scholarship initiative, which you'll read more about in the coming weeks, to increase the amount of funding available and offer scholarships across all of our MBA programs. The Executive MBA program, many of you may know, we had the first Executive MBA program in the world, which we started in 1943, in World War II, to strengthen leadership in American business, and then we were the first school to have a presence physical. on three continents.

We had campuses in Europe and Asia, and we continue to do so today. We have the campus in Chicago, the one in London and the newest one in Hong Kong, so this is a new building that we just finished in November. We had the grand opening. It is a spectacular building. I highly recommend any of you who have the opportunity to go to Hong Kong to take a look, and it will be the home of our executive MBA program in Asia, and it will also be the center of the study abroad programs that we go to. university goes. run.

So, another true example of true collaboration between us and the university. With that said, let me move on to the panel. So this follows a long tradition that we have as a school of trying to inform public discourse through panel discussions, through our global markets initiative, through publications, like the Chicago Booth Review. So, we have an incredible group of panelists who will discuss how to manage complex organizations in changing times. How do you innovate and execute in a landscape that continues to change? And how do you support your organization's enduring values? That being said, let me introduce tonight's panel very briefly because none of them really need an introduction.

So, I'll start with the first panelist here. Chicago Booth alumna Satya Nadella is a U of C trustee and CEO of the world's most valuable company, Microsoft. Then, we have Xin Zhang, CEO and co-founder of SOHO China, China's largest real estate developer. Next up, Raghuram Rajan, Katherine Dusak Miller Distinguished Service Professor of Finance at Chicago Booth. Raghu is the former Governor of the Reserve Bank of India and Chief Economist of the IMF. And finally, Robert Zimmer, as you know, star mathematician and for the last 13 years, president of the University of Chicago. And finally, the one closest to me, our moderator for the evening, David Rubenstein, U of C Trustee, School of Law alumnus, co-founder and co-CEO of the Carlyle Group.

My thanks to all of you for being here and now I pass it on to David. Thank you. (crowd applauding) - Before we start, how many people here are graduates of the University of Chicago? Well. How many people are parents of University of Chicago graduates? Well, how many people are professors at the University of Chicago? How many administrators? How many people wish they had gone to the University of Chicago? (crowd laughing) Okay. How many people have children applying to the University of Chicago? Well, those are the most important people here. Well. (crowd laughing) So, there are a lot of panels in Davos.

Davos does not suffer from a lack of panels, but I can assure you that by being here tonight, you will be on the panel with the highest IQ of the people participating. (crowd laughing) So, to my immediate left, let me start with Satya. Let me ask you a question. When he became CEO of Microsoft, when the market peaked around February 2014? - Good. - It was about 250 billion dollars. Today it is around 850 billion dollars. Thus, the market value has increased by 600 billion dollars. Has Bill Gates ever said thank you? (crowd laughing) - David, I would say I have a lot to be grateful for, but honestly, it has been one of the greatest privileges of my life, having worked for 27 years at Microsoft, to get that platform, to be able to do what I love do;

And while Bill Gates may not have said thank you, he allowed that trip, so I'm grateful for that. - You realized that if you were in the world of private equity, 20% of that 600 billion would be yours. (crowd laughing) - You should be on my Communication Committee. - Good. Well. But to be very serious. What was it that you did that transformed a company that was already very good, but is now not the most valuable in the world? What did you really do? - I mean, as someone who is an accomplished expert who grew up at Microsoft, I felt that the two things that were very necessary for me, before we got to what we think of primarily as business strategy, trend selection and execution, was that sense of purpose and mission.

When I joined in 1992, we used to talk about our mission to put a PC in every home and on every desk, and literally, even in the late 90s, we had more or less achieved it, at least in the developed world; and since then we always had this identity challenge, what is next? What really is our mission? And I realized that what we used to articulate as our mission was an audacious goal, but it wasn't the real mission. And so I returned, in fact, to the very origin of the company. Bill and Paul created a company that was basically tools for developers to create more technology, and I felt like that was our true calling, so to speak;

So I focused on that sense of purpose: in 2018,

2019

, every company is a software company. So if the market in 1975 Bill thought was big for software developers, 2019 is big, and that's what we've done, which is refocus on what we do well and be proud of it, not be envious of the success of others. and then I had to change the culture. I always used to joke with Microsoft that we're such a gift because we have Bill. We also had the challenge that there are 100 other people wandering around Microsoft who thought they were Bill Gates, so we needed to go from being those know-it-alls to learning everything, and those two things, I would say, have been a big part of it. - But when you go to your annual meeting, you should get a standing ovation, right? (crowd laughing) - No. - Don't they give you a standing ovation? - No no no.

Mostly, there are many questions criticizing what we have gotten wrong. - Okay, sure. Well, Xin, you have a very interesting experience. You were born in China, you grew up there, you went to Hong Kong, you worked there, then you went to England to study, then you came back to China and created the largest development company in China, which also does a lot of development in China. United States too. So tell me, is it crueler to do business in Beijing or New York City? Which one it is hardest? - Cut throat? Both have their throats cut. This is a cutthroat business, but the difference, I would say, is in China, because the real estate industry is highly regulated by the government, and the government policy changes almost every month, so the basic skills that we have are Interpret government policy. -We also have that problem in Washington. (crowd laughing) - You're catching up. - I know.

We are learning from the Chinese. OK, it's OK. (crowd laughing) - But in New York, what I discovered... Now, I only developed in an economy that is not a democratic country. In New York, you have another layer, which is if you want to build something, like I have a project now on the Upper West Side, you have to go to the community board, and the community board is made up of the people who have been living there forever. . , and I found that most of themKindly postpone it, so my idea was to give Microsoft a try and see if it works, if not, I'll go to business school; and during that period, the guy I worked for talked me into it and he was like, “Hey, you're coming back here after business school,” because my original idea was to become an investment banker, by the way. (crowd laughing) - That is the highest calling of humanity.

The kind with equity. - Yeah. And then, I realized that, man, I'm not cut out for this, so I decided to stay at Microsoft and, luckily, I was able to do this crazy thing of flying to Chicago and completing it. , and so low and behold, I did both. - Wow. So, you've written a really interesting book about your life and I wouldn't mention it, but I would mention the fact that you wrote about this in your book. While doing that, he also had to deal with his son having a congenital birth problem. You could describe what it is and how you handled it throughout your life, and he still lives with you and your wife, right? - Yes, in fact, my wife is here too.

We were both only children of our parents and when our son was born... Frankly, if you asked me even a day before he was born, I was very interested in both of them and our parents were eagerly awaiting the birth of our first child and More important, perhaps, would have been how Anu was going to go back to work and take care of the children, and that night, everything changed because Zane was born with severe damage to his brain and therefore has cerebral palsy; andFrankly, I struggled with it for many, many years. It was actually looking and seeing Anu and how she reacted.

I remember her driving around Seattle trying to give Zane his best chance, whether it was speech therapy or occupational therapy, that's when I realized that, first of all, nothing happened to me, but something had happened to my son. and I needed to do my job as a father, and that's maybe what changed me as a father, but more importantly, it changed me as a person, as a leader, as a coworker, and I think I attribute at least that life event to a A lot of evolution, at least in terms of my own life skills, which obviously manifest even in my workplace. -So, his son has lived with you his entire life and his wife abandoned her professional career.

Well. So let's talk about China for a moment. What do you think Xi Jinping really thinks of Donald Trump? (crowd laughing) - That's a tough question. (crowd laughing) - You know Xi Jinping, you met him. - I met him briefly. -So, tell us about him... Is he a dynamic person? He is very intelligent. What motivates him? - Well, I got the same thing as you from meeting him. He didn't say anything, he shook her hand, smiled, took photos and that's it; and Donald Trump is the complete opposite. (crowd laughing) He talked all the time. (crowd laughing) I think...

I don't know that Xi Jinping thinks about Donald Trump, but I know one thing is that China generally believes that China's rise is inevitable. Along the way, we will encounter a lot of resistance, and the biggest resistance now comes from Donald Trump, maybe not personally, but he managed to come together and build around it, and then built a consensus in America among business people, academics and Americans. Call it, government, left and right, both parties think China is a challenging rival. So in the eyes of the Chinese, and especially the general public, it is not just about Xi Jinping.

Recently, all eyes are on the trade talks between the United States and China and the news will probably follow that we have a very high-profile company: Huawei's CFO was arrested in Canada. People here would think that this is a judicial system independent of politics, but almost no one in China thinks that way. Most people would think that in China this is a politically driven action or tactic to hold them hostage and get a better deal in trade negotiations. That's what's happening in China and how the public interprets it. - Don't you think we are virtuous and just doing the right thing, China? (crowd laughing) Okay.

I actually met Xi Jinping once and the first time I met him I was a board member and my job was to have a conversation with him on the board, and I tried to strike up a conversation, I said, there's an old Chinese saying that a journey of 1000 miles begins with one step; and he said, no, that's an American fortune cookie. (crowd laughing) So, I didn't say much more. (crowd laughing) So today, would you think that... The Chinese economy is slowing down? I think last year's growth was six point six percent, which is the lowest since 1990, I think.

So firstly, how accurate do you think the Chinese figures are for these growth rates? And secondly, do you think China is slowly going down in its growth rates or do you think it will ever be able to get back to seven or eight percent growth? ? - Look, no one really understands how accurate these numbers are, but it sure has slowed down. That is sure. The trend has slowed down and you can see that the government's economic policy immediately changed, it was reversed. Until the middle of last year, the main economic policy was to contain the debt.

The government was worried about the debt crisis, so we as a company, with triple A office buildings in Beijing and Shanghai, almost had difficulty refinancing our projects, and you have to think about other companies that have no assets like building to promise, what would happen? And in October we received a different message. All the banks came and said: we have been told that we should lend to the private sector. In fact, some banks have been told that 50% of their new loans must go to the private sector. So, you can see that that policy change is because the number changed, the slowdown is happening. - And your opinion is that Xi Jinping will most likely be there for quite some time.

Will he probably be renewed for many terms or does no one know? -I think he is a young boy. - Well. (crowd laughing) So in terms of interest rates, we'd like to know, before we leave today, is the United States going to raise or lower interest rates? (crowd laughing) - We all want to know that. - And can you explain why the Federal Reserve seems to be confusing some people about what its interest rate policy is? - I think at some point last year, in the middle of last year, with the Trump tax cuts, there was a feeling that the American economy was in danger of overheating.

The Federal Reserve was very clear that we are going to raise interest rates and you in the markets better believe us, and they sent that message very, very clear for quite some time. Now, towards the end of the year, first there was the slowdown in Europe, then the slowdown in China, and in the United States, anxiety about US-China trade relations increased, and the Federal Reserve had been backing away from any kind of of kind words to the market. He was trying to get away from the Fed Put that we talked about earlier, and they had said that some volatility is a good thing.

Some Fed chairs actually came out and said the volatility isn't terrible and we're not going to be too worried about it, but the combination of President Trump yelling at the top of his lungs that the Fed would be to blame for the next recession, market volatility, as well as growing fear that the strength of the economy may not be as strong as we thought; They retreated. I think I took a couple steps back. First, Jay Powell kind of softened the view that he was determined to go down this path, and then earlier this year he basically said, we're contingent now, which basically means that if you ask me where the Interest rates are probably less high than they were going to be last year. - Well.

So, President Trump made a lot of news when he said that the first decision he made was to appoint Jay Powell. I don't know if he really meant that, but he said it at one point, and he was saying that the Federal Reserve should do certain things, lower interest rates, etc. Did you ever have that problem in India where people said, oh, they're raising interest rates too fast? - Look, our problem was that inflation was high, we had to lower it. So when I came in it was close to 10%, I left at five. How do we lower it?

I think it was repeated over and over again: we are going to reduce inflation, no matter what. Now, that was also important to say in public. There is enormous pressure on the Central Bank, both from industry and government. Hey guys, why do you want to keep interest rates high? Why not lower it a little? Give a little boost to growth. That's always the mantra. And we didn't have any dependency on the Central Bank in the sense of... We created... Just to finish that off, we created a monetary policy framework, which we eventually moved to a committee.

All of that helped. Basically, that's been pretty important in keeping inflation down, so it's a process. -So who has bigger egos, central bankers or Novel Prize winners, in your experience? (laughing) - It depends. (crowd laughing) - Okay. Well, Bob, let me ask you, at the University of Chicago, when I was in law school and graduated in 1973, I think the undergraduate part of the University of Chicago admitted about 50% or maybe 60% of the people. applied, and they had relatively few applications compared to what they have now. What did you do, with others who also helped you a little earlier, to make the application process such that you had 40,000 applications, or something like that, and you accepted six or seven percent?

What did you really do? - Yes, then there were several things. First, going back to what I said before, since we were very clear that the quality of the academic program, its intensity, etc., should not only be maintained, but I would say renewed for the current situation. So, we started a number of new programs, including molecular engineering, for example, for an institution that didn't have engineering programs, we expanded the programs with a global vision, which I think was very important and obviously resonated with this group. So, there was an expansion of academic programs. There was also a big effort to help students connect the very unique education they receive at the University of Chicago with their future lives because we've been in a situation where we gave people an absolutely fantastic education and then said, well . good luck if you get a job.

So, we instituted a lot of programs, internship programs, professional programs, that were not part of the academic program, but were how do you connect your education to your future life? Then we spent a lot of time developing themes around the community, and I would say a lot of this effort was to break down what I would say is a false implication, the story that the university told itself, which was that We are intense and rigorous, which was true, and we want to be, and that implies that you are cold and austere, which is a ridiculous implication, but it was something the university had lived by.

So, we replace that with we are intense, rigorous, warm and welcoming at the same time, which is not a contradiction. And then we had to get someone who knew how to talk about college, and that was Jim Nondorf, who is much better than everyone else in his business. - So when you go out to dinner, let's say you're in downtown Chicago or wherever you are, having dinner in New York or somewhere else, do people come up to you and say that my son or my grandson really deserved to come in? to the University of Chicago and maybe you could help him?

Here's the resume or here's... Did you ever get any of those? - Almost. I get a lot of that, but they usually don't carry the resume, but they say, I'll send it to you. - Well. -But yes, there are a lot of people... -So, is there any truth to the rumor that if someone donates to the University of Chicago Capital Campaign, he has a chance to live longer and eventually go to Heaven? (crowd laughing) - It's absolutely true. (crowd laughing) We apply a very rigorous view to that question as we do to all questions and we have absolutely verified it. - In the Rockefeller Chapel, that's what I've heard people say many times.

So if you contribute, you have a better chance of living a long life. Look, David Rockefeller graduated from the University of Chicago, got his PhD there, was a donor, and almost won 102, so there may be something to that. (laughs) So, we're finally done. What is the greatest pleasure about being president of the University of Chicago, and what is the least enjoyable part of the job, aside from panels like this? (crowd laughing) - Well, I would say, actually, the greatest pleasure for me is... It's a bit peculiar, but it's actually seeing the integration of these disparate parts into a whole that has a great effect on people's lives. in multiple and very different ways, and just at the moment when one sees, particularly someone from a disadvantaged economic background, and can offer them scholarships with no expectations of debt, and talk to their parents, who are amazed that this opportunity What arises It is an extraordinary feeling, as is watching the emergence ofthese phenomenally successful faculty members, and all of these things are happening at the same time within this integrated room. - Well, last question.

Are we going to a recession in 2019 in the United States? A recession, yes or no? - Who me? - Yes. (laughing) - Do you want a yes or a no? (crowd laughing) - It's one of the others. I don't know what else it could be. Or it is happening, one of the two. - Look, nobody knows. - I could have said that. (crowd laughing) - I'll tell you the worst thing, the worst thing in the world when you're an economist is that people expect you to have an answer to that question. (laughs) - Well, okay, then you're not going to... - Look, we're doing...

I would put a high probability that we won't have a recession, but there are a lot of uncertainties. What happens if we continue this trade war for another three months, four months, five months? Well, we could push the economy into a recession. - So, this is a problem. Generally, the R word is always a problem because when it is said that there could be a recession, the newspapers make a big deal of it. When he was in the White House, Jimmy Carter's inflation adviser said he thought we were going to go into a recession in the year Carter was running for re-election, 1980.

Carter called him into the Oval Office and said, look , never use the R word. It kills me when you say we are going to have a recession in a re-election year. He said, well, I'm an honest person. What am I supposed to say? He said, just don't use the R word. From then on Fred Kahn said, I think we're headed for a banana. (crowd laughing) And he used the word banana and no one would put it in the headlines, so that's what he used, so you don't see bananas on the horizon either, right? - Yes, we are heading towards a banana. (crowd laughing) - So if I want to buy an apartment in New York, is this a good time or should I wait a year because the price will drop? - You should wait. - Wait a year. - Wait a few more years. - A few more years? - My project will be on the market. - Well. (crowd laughing) Okay, what if I want to buy an apartment? - It will be the best location and I will give you a good discount. - Well. (crowd laughing) - Do you finance it too? - Yes. (crowd laughing) - Okay, well, I'll call you right after.

So today Microsoft stock has been spectacularly successful. I missed the run-up, but if I bought the stock today, would I be happy a year from now? (crowd applauding) - You will always be happy, David. (crowd laughing) - I don't know, I'm Jewish. I'm never always happy. (crowd laughing) Okay. (crowd applauding) Thank you. (crowd applauding) Is David Booth here? There he is, David. David Booth is a person who will surely go to Heaven because he gave the greatest gift in the history of the university. Thank you so much. It's called Booth School after David Booth. David, thank you for that fantastic gift and thank you for coming here and for everything you've done for the University of Chicago.

I'll tell you a little... (crowd applauding). I'll tell you a little story about David and me. My college work was at Duke University and David did his college work at the University of Kansas, and one time, the rules of basketball, written by James Naismith, were going to be auctioned at Sotheby's, so I thought I'd buy them and give them away. to Duke University; So I got there and it was supposed to cost, I think, $250,000 or something like that. So when it gets to 250, I'm bidding and suddenly someone bids 350. I wonder, who could it be? Is it Phil Knight at Nike?

Who bids? Well, it went back and forth until we got to about four or five million dollars, and I didn't know who was bidding and I was really upset because I wanted to give this to Duke. Well, it turned out that the person who bid against me was David Booth. (crowd laughing) And it turned out he was being filmed for an ESPN special, and apparently he was telling someone, who the hell is on the other end, me, bidding against him? Anyone, you're now at the University of Kansas and congratulations on making it. (crowd laughing and applauding) I have worked with Bob for many years and I would say that I think he is one of the great university presidents our country has ever had.

He has done a spectacular job in college, but he needs help and we are in the middle of a Capital Campaign. The Capital Campaign is designed to raise approximately $5 billion, and we would like people who have not participated to think about what they could do to live longer and get to Heaven, and perhaps follow David's example. Position. We need his support because the university really depends on philanthropy. We can't really get money from the government. We really need a lot of philanthropy. Frankly, tuition doesn't cover much of the cost. Just think about this. Everyone here for the University of Chicago is probably proud to have a degree from the University of Chicago.

I know who I am. If college goes this route, people will think you're not as smart as you think because they'll say you went to the University of Chicago. It's not very good. So, as the university improves its reputation more and more, people will think that you are smarter and smarter than you are, so what you need to do to make sure that reputation increases is give it to the university. So I hope all of you give this some serious thought before the campaign ends sometime this year. We hope it will be the most successful campaign in the history of the university.

I'm sure it already will be, but we need to do much more. The University of Chicago competes with Harvard, Yale, Princeton, and Stanford, but its endowment is a fraction of its size, so Bob and the rest of the folks at the University of Chicago have done an excellent job accepting a relatively modest endowment. , which was helped a lot by David's gift and taking the university to the highest level, so I hope that all of you are proud of your title, I hope that you will think about doing something to campaign. Thank you all. (crowd applauding)