The Power of Possibility: Stories of Struggle and Success with Mellody Hobson

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As the President and Co-CEO of Ariel Investments, Chair of the Board at Starbucks, Director of JP Morgan Chase, Chairman of After School Matters, and Co-Founder of Ariel Alternatives, to say that Mellody Hobson has a lot on her plate is quite the understatement. She came by her love of investing early and honestly, and focused her career on furthering financial literacy, advancing educational opportunities in underserved communities, and increasing diversity in business and investing. Mellody has worked with industry titans from Howard Schultz to Jamie Diman and is not shy about sharing the many lessons she has learned from them. Listen in as Mellody reveals what qualities make for the right board member, her strategy for ensuring diversity in any company, her approach to rebuilding stability and trust after underperformance, and her humble perspective on serving others.

Chapters

0:00 Intro

0:30 Episode Overview

1:28 Welcome and Ariel Introduction

2:34 The Origin of Mellody’s Love for Financial Literacy and Investing

4:19 How Mellody Stays Motivated After 31 Years at the Same Company

6:34 Breaking Down “What to Do Next”

9:05 On Stabilizing Assets and Trust After the 2008 Great Financial Crisis

12:27 Ariel’s Data-Driven Commitment to Diversity

15:39 Advice for Others on Introducing and Maintaining Firm Diversity

20:48 Unveiling Project Black

26:26 Qualities of a Good Board Member

29:02 Lessons Learned from Industry Titans

36:12 The Best Thing About Being Chair of Starbucks

36:59 Mellody’s Passion Program: After School Matters

38:50 Lightning Round Q&A

SPEAKERS

Mellody Hobson

President and Co-CEO of Ariel Investments

As Co-CEO, Mellody is responsible for management, strategic planning and growth for all areas of Ariel Investments outside of research and portfolio management. Additionally, she serves as Chairman of the Board of Trustees of the Ariel Investment Trust—the company’s publicly traded mutual funds. Prior to being named Co-CEO, Mellody spent nearly two decades as the firm’s President. Outside of Ariel, Mellody is a nationally recognized voice on financial literacy. Her leadership has also been invaluable to corporate boardrooms across the nation. She currently serves as Chair of the Board of Starbucks Corporation. She is also a director of JPMorgan Chase. She previously served as Chairman of the Board of DreamWorks Animation until the company’s sale and was also a long-standing board member of the Estée Lauder Companies. Mellody’s community outreach includes her role as Chairman of After School Matters, a Chicago non-profit that provides area teens with high-quality after school and summer programs. Additionally, she is vice chair of World Business Chicago; co-chair of the Lucas Museum of Narrative Art; and a board member of the George Lucas Education Foundation and Bloomberg Philanthropies. She also serves on the board of trustees of the Center for Strategic & International Studies, and of the Los Angeles County Museum of Art (LACMA). Mellody is a member of the American Academy of Arts and Sciences, The Rockefeller Foundation Board of Trustees, and serves on the executive committee of the Investment Company Institute. Mellody earned her AB from Princeton University’s Woodrow Wilson School of International Relations and Public Policy. In 2019, she was awarded the University’s highest honor, the Woodrow Wilson Award, presented annually to a Princeton graduate whose career embodies a commitment to national service. She has also received honorary doctorate degrees from Howard University, Johns Hopkins University, St. Mary’s College, and the University of Southern California. In 2015, Time Magazine named her one of the “100 Most Influential People” in the world.

Host

Greg Dowling

Chief Investment Officer, Head of Research, FEG

Greg Dowling is Chief Investment Officer and Head of Research at FEG. Greg joined FEG in 2004 and focuses on managing the day-to-day activities of the Research department. Greg chairs the Firm’s Investment Policy Committee, which approves all manager recommendations and provides oversight on strategic asset allocations and capital market assumptions. He also is a member of the firm’s Leadership Team and Risk Committee.

Transcript

Greg Dowling (00:06):

Welcome to the FEG Insight Bridge. This is Greg Dowling, head of research and CIO at FEG. This show spans global markets and institutional investments through conversations with some of the world's leading investment, economic, and philanthropic minds to provide insight on how institutional investors can survive and even thrive in the world of markets and finance.

Greg Dowling (00:30):

Today on the Insight Bridge, we're going to talk with Renaissance woman Mellody Hobson. She is the president and co-CEO of Ariel Investments. And not only does Mellody run a large asset management firm, but she has also become a nationally recognized voice on financial literacy. Further, Mellody is a champion of gender and racial equality, and has even shared her experiences on a very popular TED Talk. She has served on numerous corporate boards, including Estee Lauder, DreamWorks, and JP Morgan, and is the current chair of Starbucks. She is also involved in a myriad of philanthropic and charitable activities, including After School Matters in her hometown of Chicago. Mellody is also a mother and a wife. And if she could not get any more interesting, she is married to producer George Lucas. And yes, I will ask her about her favorite Star Wars movie.

Greg Dowling (01:25):

Mellody, welcome to the FEG Insight Bridge.

Mellody Hobson (01:30):

Thanks for having me, I'm excited to be here.

Greg Dowling (01:33):

Yeah, this should be fun. Before we get too far, why don't you introduce yourself and Ariel?

Mellody Hobson (01:39):

I am co-CEO and president of Ariel Investments. My name is Mellody Hobson. This is my 30--I can't even believe I can say these words--31st year at the company, as of August 1st. So in a few days I cross that 31-year mark. The only job I've ever had since I graduated from Princeton back in 1991. It's been a labor of love. Our firm is a Chicago-based investment management firm. We specialize in investing in public companies with a value bias. We cut our teeth really originally investing in small and medium-sized companies. In 2011, we expanded into international and global with all-cap portfolios. And very recently in 2021, we've expanded into private equity.

Greg Dowling (02:24):

We're going to talk about that a little bit later. And just for listeners, we might bounce around a little bit because there are so many topics that Mellody can speak on, so just be patient with us. Maybe a great place to start is just your love and passion for financial literacy and investing. It started from an early age. Would you mind sharing that story?

Mellody Hobson (02:44):

I think I came by it naturally. I believe I work in the investment business for a reason. I think I was meant to be in this industry and in this business. It really is a part of how I grew up, in a way that you would not think. I didn't grow up in a home where the stock market was discussed. I didn't even grow up in a home where we had any money. But I think that is actually the reason that I sought to be learned on the subject of money and financially literate. I grew up actually in just the opposite scenario, where we often were short on funds. Our lights would get disconnected, our phone turned off. We would get evicted all the time. And ultimately that made me a person who was really desperate to understand how money worked, how investing worked, and how I could ultimately be financially secure. So I literally chased financial literacy at a very young age. And when I realized there was a whole industry related to money and investing that I stumbled across as a summer intern at Ariel, my whole world changed. I actually knew from that moment on, of being a summer intern, that I was in the industry that I would work in for the rest of my life.

Greg Dowling (03:47):

That's such a great story. You mentioned in your intro, you're reaching the 33rd year. I think I heard that, right?

Mellody Hobson (03:54):

31st.

Greg Dowling (03:55):

31st year. Do you get a gold watch for that? What do you get for 31?

Mellody Hobson (03:57):

I only would know that we have a 30th. I think we have a 25th anniversary gift and we probably have a 30th. They escalate. I think at 25 years you can go to Africa or Asia or something. And the firm underwrites it, but I have never taken any of my milestone gifts, so the fund probably owes me a ton of money.

Greg Dowling (04:18):

That's great. It's so unusual these days where somebody has one job in their entire career and you've done that. You've worked your way up from intern to being a co-head of a major financial institution. How do you keep yourself motivated being at the same place? Any advice you would give to others?

Mellody Hobson (04:36):

I would have to say that I've never suffered from a lack of motivation. I think it's been fueled by just my own internal DNA. I think I'm one of those people that came out of the womb that way, but I also think it's been fueled by my colleagues--first and foremost with John. John is someone who inspires me every day. I'm motivated to do well for our clients and I'm motivated to do well for my teammates. I always think both of those groups of people are counting on me, and I really personalize that in order to really make sure that I'm aware of my accountability to that. I think about the people who put money in our mutual funds and put $50 a month in and they're putting away for their kid's college education. I think they're counting on me to make sure their kids could go to college.

Mellody Hobson (05:22):

I literally personalize it in that way. Not as a burden, but as a guiding light in some ways, a north star that really gets me out of bed and makes sure that I'm going. Now, also at the same time, I'm a human being, I have all of my normal fallacies and moments of doubt or fatigue or what have you. And when I'm in that mindset, I really do think about other people and I use them as fuel to keep going. I will think about people who are great inspirations and I'll think to myself, "Well, they're still going, I can too." Or, "They got out of bed or they did that amazing thing, and so they are disciplined."

Mellody Hobson (05:58):

And so that is... I channel and draft off of the success and the inspiration and brilliance of other people. People that I don't even know, but I think from afar that they're an inspiration. Right now I feel that way about Simone Biles. And I feel that way from the perspective of: "What kind of courage would it take to actually bow out?" That is courage that I think is a special kind of courage. And so, again, I was getting up this morning to go swimming and I was like, "I don't want to go. I don't want to go today." And I was like, "Simone Biles would go." I think about things like that, that sort of keep me going.

Greg Dowling (06:33):

That's great, I love that. You mentioned John and your response. You and John co-wrote a piece for The Wall Street Journal earlier this year and it was entitled, "What to Do Next." Maybe you could say what you said, and then, if you were going to rewrite it today, how would it change?

Mellody Hobson (06:48):

It wouldn't change very much. We actually decided we wanted to put a stake in the ground about our beliefs of where the market was after these--you know, we've had these debates ad nauseum on growth versus value, on small cap versus large cap, on all of these things. And value managers have been scorned and ridiculed, especially in the area when the bank stocks were dominating, which was most of the last decade. And so as a result of that, we decided that we wanted to write--just by looking at some very basic things, everything from basic mean regression to looking at what we know of long-term returns in the stock market since 1926 that we've seen through Ibbotson and otherwise. And there was where we said, "We believe very strongly a decade from now, when we're looking at stock market performance, value will outperform growth, because growth has had the wind at its back--particularly because of a super low interest rate environment."

Mellody Hobson (07:40):

We believed then--and still believe now--very strongly that smaller companies will outperform larger ones. Large cap has dominated for the last decade, again, driven by the FANG stocks. But we said, "If you look at long-term returns for small cap versus large cap, they're literally reversed right now." Through the end of last year, large cap stocks had returned somewhere in the neighborhood of 14%, 15% annualized, which is even better than what small caps have done since 1926, and small caps had done half that. So we said, "This is not normal." With risk comes return. Over the long term, smaller companies outperform larger companies. It gets harder to grow the bigger base you have. All of that, to us, really allowed us to say unequivocally what we thought the market environment would look like over the next decade.

Mellody Hobson (08:26):

It was interesting. We started to write that editorial in the late fall and it came out in December. You write something like that, you don't just write it in a weekend. So we'd been writing it before the turn had started to happen, because in September smaller cap started to rally, values started to rally. We saw a reversal of that a little bit in this past quarter, the second quarter, but we think that's a temporary phenomenon. We think that the smaller companies are selling at such a discount to the larger companies--and especially small cap value, not just talking our book. The math has no opinion; the facts are the facts. We believe that that will mean reversion alone will allow those stocks to outperform.

Greg Dowling (09:03):

I like that: The math doesn't lie. Things are going pretty good for Ariel right now, there's been a lot of great things said and written about your firm. But it hasn't been a straight line; you've had some ups and downs. And I know in particular, the GFC--2008 Great Financial Crisis--was pretty difficult for Ariel. How did you stabilize assets and stabilize trust and get back to where you needed to be?

Mellody Hobson (09:26):

So let's start off with the fact that it was a very humbling and difficult time, and it deeply cemented into me a mentality that I liken to the Depression-era babies, just having a true sense of how bad things can get and how you must rally to the occasion. I think it's very, very important to recognize when you've made a mistake. The Depression-era babies, I bring them up because they became the best savers in American history through going through that period. And I always told our team, or I still tell our team, "I want to hang on to what felt like a Depression-era time for us," which was we had underperformed pretty significantly in our flagship strategy.

Mellody Hobson (10:03):

Now it's hard to believe that was a long time ago. When you look, think back to 2008 versus where we are today--I can still channel it as if it was yesterday, but more than a decade has passed. And during that period, I think what helped us during a time when we lost a lot of assets--there's no question about it... Every single day we got fired. Every day for months and months. It was a debilitating experience in some ways, and it was a very invigorating experience at the same time. We learned very clearly what we were made of, and we also learned very clearly about our core beliefs and the values that we have, not only at the firm, but in terms of our investment strategy. We also learned too, that this is--we knew it, we just lived it in real time--how humbling this business is.

Mellody Hobson (10:49):

I think we stabilized assets by recognizing and admitting our mistakes. We tried to be very transparent with our clients and say, "This is what we did wrong." We thought we had been doing very, very rigorous balance sheet work. And in hindsight, we felt we could do even better. So we sharpened up everything that we were doing. We looked at everything. We established everything from proprietary debt ratings to proprietary moat ratings. We established devil's advocates on every stock to argue the other side. There were actually real outcomes and real things we did that allowed us, as a result, not only to pull out of that period and be number one in our category since that brutal market bottom on March 9th, 2009, but also allowed us to really withstand the COVID market drop, which was pretty significant last year, where we outperformed during that period and also outperformed coming out of it. So there were a lot of lessons learned. Those lessons got embedded into our DNA. At the end of the day, it was a very, very, very difficult time.

Mellody Hobson (11:47):

I swooned, I will tell you that. There's no question. I tell a story about Bill Bradley talking to me--the great Senator and former Knick's basketball player who was on the board of Starbucks with me during that period--sitting down with me and asking me if I was afraid and me bursting into tears in the middle of the lobby of the Fairmont Hotel in Seattle. I couldn't stop crying. Then he looked at me and hit me in the shoulder and stood up and said, "I'm going to bed." I said, "What are you doing?" And he said, "I'm going to bed, because by admitting that you're afraid, I know you're going to be okay."

Greg Dowling (12:16):

Wow. That's amazing. We're going to talk a little bit more about all of the really special people that you have rubbed shoulders with a little bit later, but Bill Bradley is certainly one of those people, for sure.

Mellody Hobson (12:27):

Yeah.

Greg Dowling (12:27):

It's funny, you know, things go in cycles. Right now, Ariel's, it feels like they're on the top and it feels like the rest of the industry, in some ways, is trying to play catch up with you. Not only just on the performance side--because you've had a pretty good run of performance and also a building out of your business--but from probably just in your DNA, Ariel is one of the most diverse firms on the street and Wall Street is not very diverse. So as your brethren are trying to play catch-up, any advice you'd give them to become more diverse in an authentic type of way?

Mellody Hobson (12:59):

Well, one thing I will say--I just want to make one comment. You did say things are going well, etc., and that is true, but I always sort of live with one eye open. What could go wrong? To me it's like the business could go away tomorrow. So we don't ever rest on any laurels and every day starts new at Ariel, and we certainly can't take anything for granted ever. I just want to state that explicitly. I don't ever feel like... There's that famous book Waiting to Exhale. In the investment business you don't exhale in that way because you want to make sure you're really on point at all times, recognizing that anything can happen and the only thing you can control--since you can't control the market--are the things you can actually control, so you have to control those as best you can.

Mellody Hobson (13:42):

When it comes to your question about diversity, what I would say is diversity is in our DNA. I tell people it is a competitive advantage for us, there's no question. Jesse Jackson has a very famous line that baseball was not as good as it could be until Jackie Robinson could play. I think that is true, which is why I quote it. But I also think that to the extent that you can include all people in the possibilities of being of service inside of a company, you end up with a better outcome. The more narrow your lens, the more you are limiting the possibilities. And so I really feel great about the fact that we've never had that narrow lens. It's not something we've had to force. There are times I've been a bit forceful with certain teams, but in general, it just comes naturally to us.

Mellody Hobson (14:25):

You know, I have this saying that I talk about. When I was a little girl, my mom used to tell me that I could be or do anything, and I believed her. And now I say that to my own seven-year-old child, but I've amended it. I tell her that, "Everest, I want you to know that you could be or do anything, but I also want you to believe that is true for anyone and everyone." That's the difference. That's how we think about it at Ariel: it's true of anyone and everyone. And when you believe that's true of anyone and everyone, you don't limit yourself to the possibilities of who that success could be, who that teammate could be, what their background is, and the like.

Mellody Hobson (15:01):

And so the diversity for us has helped us attract amazing people who feel at home at Ariel. I tell people all the time, diversity is not philanthropy. This is not some kind of do-gooderism. It is really acting in the best interest of the organization. There's a lot of data around this. I talk about it in my TED Talk, about if you're trying to solve a really hard problem, you want people with diverse intellects, diverse opinions, and the like to solve that problem. And we believe at Ariel we're trying to solve hard problems every single day. That is true of our industry. The only way to get to the best solutions is to have a diverse group of people trying to get at the answer.

Greg Dowling (15:39):

How do other companies emulate you? You've built this brand that you're going to attract the best and the brightest and probably a much more diverse workforce or potential candidates because of all the previous work you've done. How do other asset managers do this starting tomorrow?

Mellody Hobson (15:57):

First and foremost, you can't be what you can't see. So I tell all of my colleagues in the industry who tell me they're working on their pipeline, I'm like, "Okay, pipeline's half the problem." Everyone talks about the pipeline, the pipeline. I actually don't necessarily agree with that. I think you need people at the top, not coming up the bottom. The reason you need people at the top is so those people who are coming up from the bottom see someone. I think there is no accident that we've been able to attract some unbelievable woman leaders at Ariel because they see me. I came to Ariel because I saw John. I said, "I want to be like him. I want to be that." And even though I wasn't a stock picker and I run the business as opposed to creating a product that we have, there was room and opportunity for me to be that person.

Mellody Hobson (16:40):

But to have that role model that was there, who had really broken down a lot of barriers that would allow me to sit in my seat and then hopefully have me create those same opportunities... I think about young women in the firm that we've attracted that are just remarkable. Arielle Patrick who came to us from Edelman--33 years old, she was an executive vice president at Edelman, went to Princeton--joined us at Ariel. I look at people like Nikki Stokes Thompson, who is my former chief of staff who's going off to run and work with our new Ariel Alternatives team and Project Black, who came from the MBA and went to Georgetown. I can go on and on and talk about the talent and the women.

Mellody Hobson (17:18):

Our general counsel Mareile Cusick, who was working-- practically everyone told me we couldn't find a Black or Latinx lawyer because they didn't have 40 Act experience. She was at the Board of Trade. She was at the SEC before that. She moved to America from France, her parents had immigrated from Haiti to France. Then she went to Andover speaking no English and graduated on time and went to college and then went to law school. I mean, these stories are so amazing. I think those women are able to thrive at Ariel and be at Ariel because they saw me, the intern that became president. That is a powerful story of possibility.

Mellody Hobson (17:57):

So I start with my colleagues by saying... They'll say, "Well, I can't find a file technology portfolio manager of color." I'm like, "But you could find a general counsel or a CFO or a head of sales." There are other ways to look in the industry and create opportunity. And every single job or role shows people what is possible, those young people that are looking up. The competition is stiff for great talent. Why do they choose you? They have to believe they can be a success. I tell people not that they can just fulfill their dreams--exceed their dreams. I say, "Do not limit yourself to your imagination. I want you to go way beyond that here at Ariel." So having those role models is important. The other thing that I think is that you have to be super intentional. You have to get, in my words, "a little gangster" about this.

Greg Dowling (18:47):

[laughs]

Mellody Hobson (18:49):

We had an unbelievably great general counsel at our firm, he was Sheldon Stein. He'd been a lawyer of Ariel from the beginning at an outside law firm and then came in-house. Sheldon was going to retire, but before he was retiring, I said, "Sheldon, the legal team has no diversity." He would be very fine with me telling this story. I said, "We have to have diversity in this team." And so he came back to me and he's like, "I can't find any Black or Latinx lawyers that have 40 Act experience." And I said, "Sheldon, are you giving me permission to take over your search?" He says, "Yes, you can take over my search." I said, "Because I'm going to work my network to find people and bring them to you." So I worked my network, etc. and I come back and Mareile is at the Board of Trade. And he's like, "Well, let's think about the 40 Act experience and this, that, and the other." I was like, "She went to Andover with no English. I think you can teach her this" [laughs].

Greg Dowling (19:44):

That's funny.

Mellody Hobson (19:44):

"I think it's going to work out." So you have to take that leap. I was like, "Her background tells me everything I need to know. This woman is scrappy and smart." And of course she is. She's amazing. She's worked with us for a very long time now. But I was intentional about it. I said, "No, you can't just go and hire another person and not have any diversity in the group. I'm not saying it has to be your job, but zero is not acceptable."

Greg Dowling (20:11):

Yeah. You guys are so good at it that you actually found an Arielle to work at Ariel.

Mellody Hobson (20:18):

We have two Arielles now, first of all. That's like the Jennifer of my generation, it seems.

Greg Dowling (20:25):

I've met at least one of the Arielles, and she was very impressive. I just thought that was so funny.

Mellody Hobson (20:30):

We have two of them--and the thing is now--that have been hired in the last year. And the thing that I laugh about is they pronounce their names ARE-EAL, not AIR-EAL.

Greg Dowling (20:40):

Oh, okay, alright.

Mellody Hobson (20:40):

So it's Arielle and Ariel. I've joked with them that I want them to change the pronunciations of their name and their parents are not that excited about that.

Greg Dowling (20:48):

Right? It's only fair. You mentioned earlier Project Black and some of your private equity initiatives. What's the trajectory of Ariel and what are you doing on the private equity side?

Mellody Hobson (20:59):

So we've been bold. We're doing something that has never been done before. We started an initiative called Project Black. It was the outgrowth of a phone call that I received from Jamie Dimon last summer in the midst of all the civil unrest that was going on in the country. He said, "Mellody, a lot of people want to help black business." And he said, "We're thinking about bringing together some Black and Latinx investment firms." He started reading the names of these firms and I started to say, "Jamie, that firm's out of business. Nope, they're gone." It basically made the point, right? He said, "Well, whatever we do, Ariel could be a part of it." And I said, "Well I actually think I have a different idea."

Mellody Hobson (21:32):

So I went away for that weekend and I wrote a memo. In the spirit of investment banking I gave it a pseudonym, I called it "Project Black." And I socialized it with the smartest people I knew over that weekend. I sent it to them and I said, "Shred this. Tell me how naïve I am. Tell me how I just don't get it. Tell me everything that I don't know, so that I don't embarrass myself when I send this email to Jamie, and maybe I've already embarrassed myself by sending it to you." And to a person, everyone came back--and they were these very, very senior people--and they said, "This is a good idea." So I sent it to Jamie on Monday, and I'd also socialized it with the person who is now our CEO and chairman of Ariel Alternatives, Les Brun, who had started at Hamilton Lane. I gave it to Jamie on Monday and Jamie said, "This is a good idea."

Mellody Hobson (22:15):

So the idea was to bring together capital and customers. And the reason that we wanted to bring together capital and customers to scale sustainable, minority-owned businesses is because John Rogers' words had been going through my head over and over again. He kept saying, "Mellody, when people talk about Black businesses and Latinx businesses, they over-rotate to access to capital." He said, "Access to capital is important, but I believe access to customers may be more important." Then I started to think about it from the vantage point of the bank board. And I said, "That's true. If you have a fistful of receivables, JP Morgan will lend you money. So how do we get the customers?" So we thought about, could we create an opportunity for minority businesses of scale to be Tier 1 suppliers to Fortune 500 companies, to be what I call the "essential workers" of the vendor list?

Mellody Hobson (23:02):

We thought that was a real opportunity because one, we couldn't find a lot of scaled businesses--95% of minority business enterprises in this country, Black and Latinx, have less than $5 million in revenue, 95%. At the same time, Fortune 500 companies are spending about 2% of their spend, which represents about $125 billion, through minority vendors. But their stated goal is to spend 10 to 15%, which means there's a trillion-dollar opportunity, but we have a scale challenge. So we said, "How do we meet that scale?" Especially in a situation where if you're a giant company, you don't want to write fifty $2 million purchase orders, you want to write one $100 million purchase order, but we didn't have the businesses to meet that.

Mellody Hobson (23:47):

So we said, "Let's go out and buy that. Let's go out and buy businesses between $100 million and a billion dollars in revenue that--and here's the important part--may not be minority owned before we own them." In virtue of us owning them, they become, a word that I've coined: minoritized. We'll own more than 51% of them. They will have at least one of the C-suite positions--CEO, CFO, COO--be in the form of a Latinx or Black executive. They will have a majority minority board and they will have an exceptionally diverse workforce as we have done at Ariel, all the Ariel playbook.

Mellody Hobson (24:22):

Share ownership all the way from the top of the organization to the rank and file, and every single time we have the opportunity to grow and expand the business, let's try to do so in an underserved community where we can have an impact on the economy. Now we don't call this a social impact fund; however, we will have tremendous impact, that's our goal. And we think over the course of a decade, we can create 100,000 Black and Latinx jobs. We think over the course of a decade we could grow, potentially, a handful of billion-dollar Black and Latinx businesses.

Greg Dowling (24:54):

Wow.

Mellody Hobson (24:55):

Now, the reason that it's pioneering--many people, especially now, there's been a big effort to invest in minority businesses, but they tend to be at the seed stage. So we're going to the other end. We think both ideas make sense. We think it's a good idea to seed those smaller businesses. We also think creating some businesses of scale right out of the gate is important to the long-term changing of the narrative of what a minority business can be in this country.

Greg Dowling (25:23):

That's great. And you're right, it seems like there are already a handful--not many, but a handful. And when people say, "Hey, I need to do this," the money just goes to those few. But to be able to create more, you have that multiplier effect.

Mellody Hobson (25:34):

And the thing is, it's a different team. This isn't John Rogers trying to run public [inaudible] and do that. This is a whole different group, Ariel Alternatives. They're based in New York. They're run by Les Brun. Les started at Hamilton Lane, has 40 years of private equity experience. It's a publicly traded company today with a $4.5 billion market cap and over $500 billion in assets under advisement. No one can even believe I got him to do this. He's the lead director at Merck. He's on the board of CDK Global and Corning. I mean, he's a superstar. And so we're very, very excited to be able to work together. And then he's put together a team, his investors, the four of them together I call them "the four horsemen." We've got senior leadership--we have an inverted pyramid, so we've started with the top. I don't want to pretend that I know everything about private equity, but I know we brought together the people that do.

Greg Dowling (26:23):

Probably through your board work you've gotten to know a lot of these people. You've been on the corporate boards of Estee Lauder, DreamWorks, JP Morgan, and you're currently the chair at Starbucks. What qualities make for a good board member?

Mellody Hobson (26:36):

Oh, I think there are a few. I think about them when I think about board members for Ariel. And I think about it when a lot of people come to me and ask, "What should I look for?" I say, "It's not about big names." I have a very simple rule of thumb when it comes to board members--boards matter most in hard times. That's when all the rubber meets the road, it all comes together and comes to a head. In good times, it's a pleasant experience. It's sort of nice and you sit around the table, etc., you ask questions. But in hard times, it really matters. What makes for a good board member is the people who you can be in a foxhole with, who aren't thinking about their personal brand and reputation and how fast they can run to the exit. You want people who will be smart, thoughtful, and cool-headed when things are not great.

Mellody Hobson (27:26):

I've been there with Ariel. When we had our tough time in '08, you want sanguine, calm people around. And that is my ultimate task. The know-it-all, the smartest person, that is not necessarily the best board member. And certainly that person who feels the need to check boxes. You want counsel, and counsel is different than title, it's different than what someone's net worth is. It's really about their wisdom. And you know it when you see it through questions and asking people about difficulties they've had in their life and career. I had a conversation with someone who's a superstar just last week--because I'm always trying to learn and get advice--and I said to this person, they were talking about something and I said, "When did you know what you were doing? When were you really comfortable in who you were?"

Mellody Hobson (28:20):

And he said, "It was when I realized I had no fear." And I said, "Well, when did you realize you had no fear?" He said, "When I realized that I had been ridiculed, mocked, criticized. That I had made dumb mistakes and that I'd had successes as well, a lot of successes. But once I realized I was still standing, I had no more fear and I could be my best self." And I think that's what you want with board members, the people who have gotten to that point of being comfortable with themselves and not having fear. That doesn't mean reckless. It doesn't mean throwing caution to the wind. But when you are not led or motivated by fear, I think you make better decisions.

Greg Dowling (29:01):

That's great. A few of the people you've rubbed shoulders with have been Jamie Dimon and Howard Schultz of Starbucks. What have you learned from your interactions with them?

Mellody Hobson (29:11):

They're very different people in a lot of ways and they're similar in other ways. The similarities I think are somewhat universal for people who have achieved that kind of iconic CEO status. That similarity is they're extraordinarily driven, both of them. Again, that's universal. I think people who achieve greatness, they're driven. It's just a fact. I think they both genuinely and unequivocally love what they do. I think that's really important. I was reading something from Charlie Munger the other day, and he said that he could get to be probably very good at a lot of things, but never great at anything he didn't love. And I thought that that was something just to, again, remember, you can only be great at something you love.

Mellody Hobson (29:49):

Jamie loves that bank as if he had started it. And Howard started, in many ways, Starbucks and loves it for that reason. The same way that I love Ariel. You know, love. Ariel was my first child in so many ways. What I've learned from Jamie is different than what I've learned from Howard, but Howard really taught me so much about what he says--it's his line that I'll quote--"leading through the lens of humanity." His heart and soul is about first thinking about other people and then success, to the extent you put other people first, will come. That got inculcated in me through him. And it really landed, it really spoke to me. I felt like the universe brought me to him to be able to fine-tune that in myself.

Mellody Hobson (30:36):

So I have so much gratitude for Howard. I sat next to him in every single meeting for over 15 years. Next to him literally. And I joked with him--he didn't know I was doing it on purpose because I wanted to watch him and I wanted to learn from him. I wanted to see like, if someone spoke and he wrote something down, why was he writing it down? I was literally studying him a lot. That was--that humanity piece is what I learned from Howard, even though Howard is very driven, very decisive, big, giant, giant, giant vision.

Mellody Hobson (31:06):

From Jamie, I have to say... Jamie's very similar in a lot of ways to Howard, again, in terms of the scale of their thinking and the bigness of their vision, both of them. Enormous organizations. I always joke with Jamie, "coffee is easier than banking." I feel like I'm getting a PhD in banking on the board of JP Morgan, because it's so much more complex in some ways. And in other ways, not. But from Jamie, I have to say, I've seen how he creates a team. That's been something that has been unique that I've been able to identify. My husband always talks to me that the General is really important, but the Officer Corps--he's like, "You gotta have an unbelievable Officer Corps." And I think Jamie really perfected that. And that's not to suggest Howard doesn't.

Greg Dowling (31:51):

Right.

Mellody Hobson (31:51):

It's just the scale of it. They're number one or number two in every business line that they're at. So how do you get that person as the General of that business? How do you get those Generals that are that phenomenal? And there are a lot of them at JP Morgan. His talent acquisition skills are very, very unique. And despite his super big presence and super big personality, they want to be there with him. And I think that says a lot.

Greg Dowling (32:17):

I've not met Jamie, but I have met Howard. He was at a conference that I was at Seattle and he came in small groups, spoke. It was half about Starbucks and the other half was just kind of his story. It was very inspirational. So to be able to sit next to him at quarterly meetings is pretty amazing. How do you bring this all back to Ariel? I've heard you say you didn't get an MBA, but this is your MBA. How does that information get back?

Mellody Hobson (32:38):

I bring it back to Ariel every meeting. They will tell you, I get on the call with our own operating committee. I developed the operating committee because of the OC at JP Morgan. I can tell you all the things. Like I am not afraid to copy and steal a good idea in terms of leadership or organization or how they thought about things. No need to reinvent the wheel. Literally, our OC is because of the OC of JP Morgan. That's the version of our Officer Corps. And then those Officers are Generals in their own businesses. I would say that so many things... Like our original stock program was borrowed from Aon when John was on the board there and saw what Pat Ryan had done with stock for employees.

Mellody Hobson (33:18):

There are times I come back and I'm like, "This is what I learned." Or I remember once hearing Jamie talk about cutting the tail. He was talking about, "You know, in technology, everyone has a reason that they have to have their one program, their one system." He's like, "Cut the tail, cut the tail." So I went back to our office and I said something like, "This seems super small." I went back to the office and I said, "I have a Blackberry and everyone else has iPhones. You just put together this request for a new Blackberry server. How many people have blackberries?" They're like, "five." And I was like, "What?" They're like... What about this? Buy a Blackberry server for five people when we know it's like going on a--going away. And they're like, "Well, you have a Blackberry and Rupal has a Blackberry." And I was like, "We're investing in this because of Rupal and me?" I said, "Uh, we're giving our Blackberries back in two days." I was like, "Cut the tail."

Greg Dowling (34:07):

They're like, "Cut the tail? Where did she hear that?"

Mellody Hobson (34:09):

And that's what I told them. I said, "Cut the tail." I was like, "You can't keep something just for the two of us. I don't even want a firm run that way."

Greg Dowling (34:15):

Right.

Mellody Hobson (34:16):

We have to run the firm for maximum efficiency. I could give you a thousand examples of that, literally of just something that I've heard differently or seen differently. I remember, again, Jamie talked to me once about the fact--he's like, "You can't make a bureaucrat, a non-bureaucrat." He's like, "It's just not possible. If you work with a lot of bureaucrats, you can't teach them to not be a bureaucrat. It's just like in them. You have to ask yourself about efficiency and what happens if you have a lot of bureaucracy around you." And this was the sentence he said--you can see I still remember all these things. This was two years ago. He said, "I have never seen something that was better when it was more complicated than being simple, ever." So think about that in terms of processes and think about that just in an OC meeting where we are talking about things. I'm like, "Wait a minute, that's really complicated." And I'm like, "But Jamie says nothing has ever been better more complicated than simple. How do we simplify this?"

Greg Dowling (35:15):

I can just see back at Ariel, someone going, "All right, what did Jamie say?"

Mellody Hobson (35:21):

Well, I bring them back. It's like nothing about the business or nothing telling any stories out of school, never, but more about philosophy, that's what I bring back to our firm, understanding. Howard taught me when I went to become chair, he said, "Mellody, every meeting I've ever been in, I always imagined two seats in the room that are empty." And he said, "I think if you would do this, it would help you too." And I said, "What do you mean?" He said, "The two seats that are empty. One is a partner inside of Starbucks, which is what we call our teammates, and one is a shareholder. When you're in that boardroom, everything you say, be proud to say in front of those two seats." That was super helpful. I took that back into our own firm. I was like, "Let's think of the hundreds of thousands of mutual fund shareholders, millions of mutual fund shareholders, 401k plan participants. When we're in that room, are we proud of everything we're saying if they were sitting right here?"

Greg Dowling (36:12):

I have to ask, what's the best thing about being the chair of Starbucks?

Mellody Hobson (36:15):

I learn new things now. I was on the board for 15 years and now I get to go another level of depth. That's been really exciting. I sit around the table with some of the greatest minds in business. I am humbled by the fact that I get to lead. Satya Nadella is in the room ,and Mary Dillon from Ulta, and all these people, so it's not about, "Oh, you're in charge." It's not. Because it's a collaboration of some amazing leaders. But I do get to go a little deeper in between meetings. So I've learned a lot of new things that I think have helped me as a businessperson, and more importantly, as a person.

Greg Dowling (36:50):

Now I told you pre-call I want my green drink back.

Mellody Hobson (36:52):

It's coming. We've got a little bit of a supply-side challenge because of COVID, but it's getting back on track.

Greg Dowling (36:58):

All right. All right. After your board work, you are just so generous with your time and your money when it comes to philanthropy. We could probably spend another podcast on this. But I just wanted--I know one that's near and dear to your heart is After School Matters. What are you doing there?

Mellody Hobson (37:13):

We are creating after-school programs for inner-city high school students in Chicago. It allows them to pursue almost any interest they might have, and we pay them to come. So right now, this summer, we're the highest employer of teens in Chicago and we have about 14,000 students in our program for the summer. During the school year, any given semester, it's about 20,000 kids at a time. Some of those teens repeat the next semester. So over the course of a year, we'll see 25,000, 30,000 teens. At the end of the day, what we're doing is we're trying to allow their creative juices to become unleashed. We have over 1,000 programs, everything from a NASA space program to hip hop dance instruction, we have an animation studio, a television studio. You can dance with Joffrey. You name it, we have it.

Mellody Hobson (38:01):

We have farm-to-table. You can become a chef. I could go through all the things that we offer, but the idea is to give these enrichment programs to teens who otherwise would not be able to afford to do so. And then to entice them to be there by paying them to come. It's the largest program of its kind in the world. We have a budget of over $30 million a year, and we have over a thousand, mostly teachers that work for us after school in the program. So it helps them also earn additional income. And it's investing in the most important asset we have in our society, which is young people.

Greg Dowling (38:35):

It's too bad it's only structured for kids, because if it was open to adults, I might sign up. That sounds awesome. What a great thing to provide our youth. Because there's so many more topics I want to talk about and just kind of random things I want to ask you as well, we're going to do a lightning round. First one: favorite Starbucks drink.

Mellody Hobson (38:54):

Believe it or not, I drink black. So I have nothing in it. And I drink Pike Place.

Greg Dowling (39:00):

Pike Place black. Okay. As chair, you might be able to name that after yourself.

Mellody Hobson (39:06):

No. There's not even a Howard drink. I would never want that anyway.

Greg Dowling (39:09):

All right. Favorite Star Wars movie, and favorite quote from that movie.

Mellody Hobson (39:15):

I actually don't know if it's in the actual movie. My favorite Star Wars quote--this quote is not going to be a surprise to people who know me. I love the quote: "Do or do not. There is no try." That's my favorite.

Greg Dowling (39:25):

From Yoda, right?

Mellody Hobson (39:26):

Yes, from Yoda. My actual favorite movie, I think is The Empire Strikes Back.

Greg Dowling (39:32):

I agree. I agree.

Mellody Hobson (39:33):

Which I just named our client letter, because large cap stocks outperforming small cap this quarter.

Greg Dowling (39:37):

Yeah, the evil empire strikes back. I love it. And the reason we asked that for listeners who go, "Wow, that was an obscure question." Your husband is George Lucas, so that's why I asked that question. So another one that I was told, I didn't know this about you, but that you're a Formula One fan. Quickly, how did this happen?

Mellody Hobson (39:56):

I am obsessed with Formula One and I root for Lewis Hamilton, who's the first and only Black driver in Formula One history. He's a seven-time world champion. He holds the record right now--shares the record with Michael Schumacher, who was the German driver who was seven-time champion. I became interested in Formula One through my husband. The first year we started dating was Lewis' rookie season and he said, "I love Formula One and I go to these races. Do you want to go to a race?" And I was indifferent to it until he said, "Well there's this guy, Lewis Hamilton, and he's the first and only Black driver." And I was suddenly like, "What?"

Greg Dowling (40:29):

I'm in.

Mellody Hobson (40:30):

And so I became obsessed. I know everything about Formula One, the cars, everything about it. Lewis became a really--he's like my little brother, he's a super, super close friend. We're going on vacation together in a couple of weeks. I've learned a lot from him, his endurance and the like. But I became obsessed with it because of him, and that's the power of diversity.

Greg Dowling (40:50):

Yeah, that's true.

Mellody Hobson (40:50):

He sold me on it. And now, you know, the continent of Africa--giant Formula One viewership. Latin America, because of Latin American drivers that drive. It's the power--it's one of the most watched sports in the world, up there with soccer. But those numbers dwarf our numbers on American sports like football and things like that. It really is because of him that I started to become this rabid fan. And now I watch Drive to Survive on Netflix, which if you haven't seen it, it's so good. And I read Formula One Magazine.

Greg Dowling (41:21):

Wow, you are all in.

Mellody Hobson (41:22):

All in.

Greg Dowling (41:22):

I had to know the backstory on that. All right. Favorite book on either leadership or investing?

Mellody Hobson (41:28):

I'll give you two. My favorite book on investing of all times is Buffett: The Making of an American Capitalist by Roger Lowenstein. That literally taught me everything I needed to know about investing, because Warren Buffet is the greatest investor of all times, and it really just gave us his playbook. That's what we always say at Ariel: "Why don't more people do what he did to create Berkshire Hathaway into the behemoth that it is, and to create the wealth that he ultimately created in society--not just for himself, but for the Berkshire Hathaway shareholders?" It's one of the first stocks I ever bought. I bought the baby Berkshire shares when I was in my 20s because I couldn't afford the big stock. And I still owned those shares when they went public. That's my favorite business book.

Mellody Hobson (42:07):

My favorite book on leadership is interestingly... I love so many books. I love Good to Great. I love so many books by Jim Collins. But I really was taken with this book called Grit by Angela Duckworth. That book for me was a game-changer. What creates success over the long term? Sticking to things. And why sticking to things really matters with your children, with your colleagues, etc., in terms of it creating a muscle for you ultimately to endure and ultimately be successful. So Grit, when I read it, I was sending it to everyone. I read that book in a weekend and loved it. Loved it. And I felt the same way about The Making of the American Capitalist. Both of those books for me are like... I go back to them at times when I need it.

Greg Dowling (42:51):

I agree. We do a book club at FEG, and two years ago Grit was our summer book club. Fantastic book. All right. I am just blown away by all that you do. I mean, on top of this, you've got a seven-year-old at home. You're truly a Renaissance woman, and we really appreciate you giving us the time and your knowledge today.

Mellody Hobson (43:12):

Well thank you so much for having me. I just want you to know, I have so much respect for you and the organization you all have built there. It's really an honor to be asked to participate. So just know it means a lot to me and to my colleagues at Ariel to tell our story.

Greg Dowling (43:26):

This was fantastic. Thank you so much.

Greg Dowling (43:28):

If you are interested in more information on the topic, please go to our website where we will have a list of relevant FEG publications. And don't forget to subscribe to our communications at www.feg.com/subscribe so you don't miss the next episode. Please keep in mind that this information is intended to be general education that needs to be framed within the unique risk and return objectives of each client; therefore, nobody should consider these FEG recommendations. This podcast was prepared by FEG. Neither the information nor any opinion expressed in this podcast constitutes an offer or an invitation to make an offer to buy or sell any securities. The views or opinions expressed by guest speakers are solely their own and do not necessarily represent the views or opinions of FEG.

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This was prepared by FEG (also known as Fund Evaluation Group, LLC), a federally registered investment adviser under the Investment Advisers Act of 1940, as amended, providing non-discretionary and discretionary investment advice to its clients on an individual basis. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Fund Evaluation Group, LLC, Form ADV Part 2A & 2B can be obtained by written request directly to: Fund Evaluation Group, LLC, 201 East Fifth Street, Suite 1600, Cincinnati, OH 45202, Attention: Compliance Department. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. The information herein was obtained from various sources. FEG does not guarantee the accuracy or completeness of such information provided by third parties. The information is given as of the date indicated and believed to be reliable. FEG assumes no obligation to update this information, or to advise on further developments relating to it. Past performance is not an indicator or guarantee of future results. Diversification or Asset Allocation does not assure or guarantee better performance and cannot eliminate the risk of investment loss. The views or opinions expressed by guest speakers are solely their own and do not represent the views or opinions of Fund Evaluation Group, LLC.

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