Rare Interview: Neil Shen (Sequoia China) and Stephen Schwarzman (Blackstone) Part III

Earlier this week, I came across a live discussion between Neil Shen (Founder of Venture Capital firm Sequoia Capital China and #1 on the Forbes Midas List in 2018, 2019, and 2020) and Stephen Schwarzman (Founder and CEO of private equity firm The Blackstone Group). In this wide-ranging conversation, these two giants of their respective fields discuss everything from China’s economy and the impact of COVID-19 to the core traits an entrepreneur should have and what to look for when hiring.

No recording, but I’m sharing my transcription for easy consumption.

In this section, the pair discuss why culture takes precedence over management, and Schwarzman dives deep into Blackstone’s culture, discussing their “zero-defect culture,” why he dislikes “paid audiences,” and how he assesses talent.

This is Part 3 of 4. Part 4 will be posted tomorrow, and cover principles for life and investing.

For more fun stuff, you can follow me on twitter @kgao1412. And definitely check out my compilations page.

Part III: Why Culture is more important than Management

4/23/2020

Neil Shen: You mentioned in your book that corporate culture is more important that management. Can you elaborate on this philosophy? And how does Blackstone’s culture differentiate itself from others? And what have you been doing to build this very unique culture?

Stephen Schwarzman: Well, what you learn is that no one person, no matter how good they are, can do what everybody does. And you can’t control what everybody does, other than by teaching them good values, teaching them what you believe so that they can keep the core of what you believe and enjoy themselves. So at Blackstone, we have a variety of things that you just have to have. If we’re hiring people, we have to hire very smart people. We have to have people who are honest and have high integrity. We believe that high levels of cooperation. I believe in the “zero-defect culture.” And what that means, is you can make mistakes in judgement, but you can’t make mistakes in your work. It always has to be accurate. Anything that leaves your desk that goes to someone else, has to be perfect.

I believe, and we teach everyone, that groups can make better decisions that just one person. And decisions should be made based on intensive analysis, laying out all the risk factors in any decision, and then assembling a group of six to eight very smart people, and having them analyze that information in an open way.

And we have a culture where no one is an observer. If you’re in the room, you must talk. And you must tell people what you think. Not what somebody else thinks.

I don’t believe in what I call, and I hope this can translate, “paid audiences” of people in a business. If you’re at a table, you’re there to make a contribution. You are not there to watch other people intellectually work. And so we have these very vigorous debates. It’s part of the culture. It happens on every decision. But it’s not personal. Because in most organizations, if you say something that disagrees with someone else, then the person is going to view it as attacking the other person. And that doesn’t work well. So people are reluctant to say the truth.

We’ve created an environment where you have to tell the truth, and what you think. And it’s impersonal. And once everybody knows every meeting is going to work like that, then you have the benefit of everyone’s intelligence, which is very important. And we also have other core values, which is helping society so that people have a chance to help their organization outside of the business. And we treat everyone in the business as if they’re family.

I view the business as if it’s a small business. Now right now we have over 500,000 people with our parent company, which has about 3,000, and the other businesses and assets that we own. But I try and make sure that our senior management group, on Monday, is on video with everyone in each of our individual business lines. Because if you’re going to transmit your values and what you are thinking about the world, you can’t just send out an email. You have to be in-person. And video has transformed the way to manage businesses. And so, if all of your people for example in private equity, and after private equity meets, our real estate business meets, and then our credit business, and then our tactical opportunities business all day, four of us, sit in the same room, and the equivalent of 250-[“20 hundred”] professionals meet with us for each of those businesses. We go over everything in the world that’s happened so that every person knows everything. Even if you’re 23 years old, you know as much as the senior person in the entire business. We try and treat everyone as if they’re the most important person in the business. It’s a very American type of style. Very horizontal. Not vertical.

And what happens is when you take very talented people, and treat them as if they are extremely important, then they will do almost anything to the benefit of the business because they think like you. So that style of constructing an organization is exceptionally powerful. And each one of those people, when they’re in a situation alone, will reflect your values. You don’t have to tell them what to say. They will know what to say.

Neil Shen: That’s a very very unique culture. And it’s clearly not easy for a large organization like yourself, and still, everyone feels that they are a family member. It’s just a very very powerful culture. You did mention a couple times about talent, and you want to hire the best team members and talent. So, in the book, you talk about to build a winning firm with nines, with people who have the score nine, but people who are 10s, who can take the business in new directions without being told to do so. So how do you know someone is a perfect 10? How do you evaluate talent?

Stephen Schwarzman: Well, you’re a 10. So how would I know that you’re a 10? Well, one way I would know, is that for people who are older than 40 years old, they are their reputation. What I see doesn’t matter much. If everyone who knows you says you’re amazing, what I’ve learned in life, is you are amazing.

Neil Shen: They are.

Stephen Schwarzman: And when people are younger, it’s harder to judge that, because they aren’t fully formed yet. So I’ve interviewed huge number of people over my life. I’ve been in business over 50 years, and it’s one of the parts I enjoy the most. And I enjoy it because when a person comes in, it’s hard to know what’s going to happen, so it’s an adventure. It’s not like the normal part of your day. And usually, I get a resume, or a CV you might call it, and usually, at least in the West, particularly with younger people, they have their background, and at the bottom they have something that says interests. Either they’ve climbed Mt. Everest or they’re the best swimmer, they won a silver medal in the Olympics, or they are the Number 1 chess champion in the United States under the age of four. Some funny thing. So what I’ve learned, they put that there so you’ll ask them about it. I always ask them about it, because that’s my way of being friendly, since they’ve sort of asked me to do that. And then that conversation goes someplace. And I’ll take it wherever it goes.

Sometimes I’ll walk in a room, and have done something very interesting, like this video, that’ll be all over China. And I’ll say to the next person who sees me, “I just did the most amazing thing! I just was talking to maybe 100MM people in China. How interesting!” And if they don’t respond, that’s sort of odd, because this is not an everyday thing that somebody would do. So I’ve learned, if they don’t respond at all, that means they don’t have a lot of curiosity. So I’m looking for people who are [“mally-o-laud,” maybe “malleable?”], they’re smart, they’re flexible, they’re curious.

If you start talking about something that they don’t know, and don’t have a background, they’ll either try to play along and make a mess, or they’ll say, “You know what? I have absolutely no background in that area. Here’s what I can say, but this isn’t an area I’ll be very good.”

I’m looking for people who are stable under pressure. It’s very easy to be sort of self-possessed when there’s no pressure on you, and you can figure that out just because the interview setting is tension producing to them, not for me. So I try and figure out how they’re doing under that pressure. Did they enjoy it? Did they come alive? Or if you ask them some things, do you see them sitting further back in their chair, symbolically trying to get away from you. If that’s the case, there’s no hope.

I sort of imagine that this person is already working at the firm, at Blackstone. Would I want to see this person again? Are they showing me something that maybe I don’t know. A different way of looking at something, where I’m not an expert. And so what happens, is you can very quickly figure out how good somebody is.

By the time I interview people now, the fact they know how to do their work well, somebody else has figured out. People just don’t come in and see me. Usually, in our system, they’ve met 15 or 20 other people before they get to me. So my judgement, in this stage in my career, is “What is their potential to be great?” And if I see someone, which I did about nine months ago, to start one of our new areas in Growth Equity, just an extraordinary person. I was supposed to see him for a half an hour, I just couldn’t stop talking to him. So after an hour and a half, I said, “Look, I haven’t checked with everybody else, everybody thinks you’re great, you’re hired. You’re amazing. And I can’t wait to be working with you.” Now that doesn’t happen that often, because people who are 10s are pretty rare. But hiring people and knowing what their capability and potential is, is one of the things that makes a great organization, as you would know.

That’s what you do that for a living. You interview people constantly to try and figure out [“whether it’s a 10 that you have”], and the drive, talent, intelligence, flexibility will get you to something great. Sometimes, if you have a great person, in the venture business, and their idea seems great but the world changes, that one investment might not be as good. But they’ll be successful doing something else the second time. Because basically they’re enormous pieces of talent.

This is Part 3 of 4. Part 4 will be posted tomorrow, and cover principles for life and investing.

For more fun stuff, you can follow me on twitter @kgao1412. And definitely check out my compilations page.

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