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If you like Stephen Schwarzman's story, you might also like:
Lawrence Ellison,
Ray Dalio,
Henry Kravis,
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Stephen Schwarzman
Stephen Schwarzman
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Stephen Schwarzman Interview (page: 4 / 4)

Chairman and CEO, The Blackstone Group

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  Stephen Schwarzman

You become Managing Director of Lehman Brothers at age 31. You must have been pretty good at it. What do you think was propelling you forward?

Stephen Schwarzman: I think investment banking is pretty easy. The reason why I was probably pretty good at it is that it's very easy to get the sort of fundamental base for it. After that, it's anticipating what's going to happen, figuring out new things, new relationships, solving problems that people haven't focused on in the right way. I don't know if that describes it. Here's just one thing I can remember, just sort of at random, which I was proud of at the time. It seemed pretty simple to me.

There was one of these development institutions, like the World Bank -- it had a different name -- and they had a variety of bonds outstanding, and each of those bonds had what's called covenants, which are really restrictions in them. The bank wanted to do something, but wasn't able to because some of these issues forbid them, and they still wanted to do something, but they couldn't get those bonds in. They couldn't call them. They were stuck with it. It was an important initiative, and everybody was real concerned. They didn't know what to do. So nobody could solve the problem, and I was one of the people working on this, and I remember going home at night and I often think of things when I'm sleeping. I don't sleep real deep REM stuff, and I woke up, and I said, "You know what? What's the problem here? The problem is that these bond-holders want to be protected for something, and what's the worst that can happen to them? The worst that can happen is, if you did the bad thing and it didn't work out, they'd lose their money, right?" So, I said, "Why don't we just take a bunch of money" -- because banks always have money -- "and just dedicate that money behind those bonds and go ahead and do whatever we want to do. Because the worst that can happen is that they lose their money, and if we assure them that they could never lose their money, then they don't have to worry. And if they don't have to worry, they have no cause for damages against the institution for going ahead and doing something. So I came in with some elaborate sort of proposal to do that for large amounts of money -- at that point, large amounts were hundreds of millions, now it would be tens of billions -- and everybody just sort of sat there and went, "Geez, no one's ever done this," and I said, "Well, so what? Aren't we addressing the problem?"

[ Key to Success ] Vision

They all said, "Yeah, but it's not legal." I said, "Forget the legal part for the moment. It's not technically legal, but if we went to all the bond-holders and asked them for a vote and said there's no conceivable way you can lose money, because the money to pay off the bonds and their interest is already dedicated, and we got a pretty high percentage of the vote," I said, "That seems to me like a risk you can take, because you're doing nothing unethical. You're protecting the bond-holders better than they are today, okay? Today, they just have to rely on the general credit of the institution, and we're making it even better. We're putting a few hundred million dollars worth of cash behind to guarantee the payment. I said, "Who could be unhappy?" So they did that.

You didn't get the Pan Am response. At the end, they bought in.

Stephen Schwarzman: Right. They bought in because they had a problem, and they wanted that problem solved.

I've always found, in investment banking, that there's real logic to everything, and I don't understand why somebody else didn't come up with that. They probably would have, at some point, but you know, I've always found -- and I really didn't specialize in doing financings like that. I really did merger things with most of my career, and that's just another derivation of solving problems. In the merger business, there's also the ability to sort of go out on a limb and sort of invent things, sort of creatively imagine "What would this company buy?" before they might even think about it. And then sort of go to them and convince them, and then convince the other side to do something, or negotiation, which is -- you know, a lot of people don't like really being in zero sum games, and you try and make a zero sum game not a zero sum game. But you know, that's your first level of solving of problems. But at the end of the day, if money's being paid, usually it's out of somebody's pocket into somebody else's pocket. So that is a zero sum game at the end of the day, and usually that generates huge amounts of conflict and tension. A lot of people don't like being in situations like that, and for whatever the series of reasons, that didn't bother me. I don't always enjoy it, but it didn't bother me.

[ Key to Success ] Passion

Stephen Schwarzman Interview Photo
It would be normal for the other person to get angry if you were demanding a lot of money or something. That would be a normal response. If I were on the other side, it would just be the opposite. I found that I was pretty well adapted for this stuff, in large part because finance has much to do with understanding what's on the other person's mind, and if you can understand what's on their mind, in effect, that's the problem to solve. There's a zone of fairness where you can solve that for that person, and at the same time not disadvantage the other person you're representing. So that was probably what made me pretty good. You don't even have to meet with the other people to know what's on their mind, because you say, "Well, if I were them, what would I want?"

It's a kind of empathy.

Stephen Schwarzman: Whatever.

It sounds like the factor of common sense, which is not so common, is a fundamental factor, at whatever level of the economic process you're in. Do you find you have to make a gut-trusting decision at a certain point?

Stephen Schwarzman: Yes, I think that's right. You don't even have to have a remarkable gut as far as I'm concerned. Once you see things line up that way then the issue is just, you know, crushing execution, okay? You go into an execution mode. The important thing, ironically, isn't the execution. If you have the right vision and the right perception, the rising tide will, indeed, lift all boats. If you happen to have a super-buoyant boat, you'll do better. If you have a super-fast boat, you'll go faster, but the tide is going to bring up all the boats. The thing that's most important is figuring out where those special, special things are going to be happening, and that's really pretty easy.

Mr. Schwarzman, that's the last word. That was great. Thank you very much.

Stephen Schwarzman: A pleasure.

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This page last revised on Dec 22, 2007 13:28 EDT
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