Sustainability is a top priority for corporations, but what does it mean to be a sustainable leader?
In this Walker Webcast, Clarke Murphy with management consulting firm Russell Reynolds Associates addresses this question and many more. He and Willy discuss his new book, Sustainable Leadership, as well as best practices that all companies should incorporate, ways to acquire and retain top talent, and the traits and practices of the best leaders.
Clarke and Willy start off the episode with leadership strategies: how Clarke transitioned out of the CEO role at Russell Reynolds, the ideal number of board members, and why Clarke’s “massively” in favor of private, rather than public, companies. “When you’re in a client service business, you shouldn’t have to be worrying about public shareholders at the same time,” he says.
The conversation then turns to LinkedIn, which many people believed would be the end of the executive search firms. According to Clarke, the platform has actually made executive search firms more relevant. He talks about how LinkedIn transformed these operations at Russell Reynolds and transformed the technology industry.
What defines the best companies in the world? “Those who retain the best people longer than their competitors,” Clarke says. So, what advice does he have for talent development? Let employees know your company is investing in them, he says. And prioritize leadership. “Without great leaders, strategy loses.”
Great followers matter, too, Clarke explains. “Leadership is no longer about leading, but about creating followers around you. You must create followership in the things younger people want in today’s world.”
In today’s ever-changing world, humility is a key leadership characteristic, from how executives approach their leadership teams to how they make decisions. “A leader can have confidence, decisiveness, and ambition and still be humble,” Clarke says. “As a leader, it is important to ask yourself if you are still learning.”
This leads to the topic of Clarke’s new book: sustainable leadership. Clarke unpacks the concept of stakeholder inclusion and how it can make a positive impact. He highlights the leadership of Duke Energy CEO Lynn Good and talks about the three types of sustainability leaders covered in the book: “the born, the convinced, and the awoken.”
Whichever type of leader you are, preaching at investors is not a good path to success, Clarke declares. Instead, observe the impact of what’s being done, gain insight into what people are trying to combat, and think of sustainability as a strategy, embedded into everything a company does, rather than a sole initiative or project.
Clarke notes that half of chief sustainability officers today are women. He talks through the characteristics of a good CSO: agility, persistence, an ability to deal with ambiguity, and the ability to bring people along with them. “As it is a relatively new rule, there is no playbook for people to look towards for guidance,” he says.
02:02 Willy welcomes Clarke Murphy
03:40 Leadership transition and the ideal board size
08:39 Adapting to LinkedIn and working together
14:10 Talent development and retention
19:28 Missing a whale
23:39 The factors of a sustainability mindset
27:32 Maersk and moonshot CEOs
35:11 Qualities of sustainable leaders
40:44 Why “the convinced” are more powerful
47:08 Lessons from Adidas and BROAD Group
50:23 CFOs and governance in the post-COVID era
Willy Walker: Good afternoon to people on the East Coast and good morning to all of you in Western time zones. Clarke, it is a real pleasure to have you with me today. Let me talk for two seconds about my last two guests, because they are important to what we've been seeing going on in the world around us, and particularly to my conversation today with Clarke. And then I'll dive into my discussion with Clarke. Two weeks ago, we had Larry Sabato from the University of Virginia where Clarke actually went to college. Larry was pretty straightforward at that time that he didn't see a red wave coming. It was going to be more like a tide was what he used, but he did not think it was going to be a complete wipe out. And I guess Larry, yet again, was correct on what happened in the elections last week.
And then last week I had Bobby Turner from Turner Impact talking all about how Bobby has taken a real leadership role in sustainable development in the United States and creating sustainable communities that serve working class families across the country. If you have the chance to watch that, I think it is quite compelling what Bobby has done as it relates to Turner Impact's focus on sustainability and on doing right.
That is a great segue into my guest today. Let me do a quick intro, Clarke, and then we'll dive into our conversation.
Clarke Murphy is a leadership expert who advises the world's top companies on leadership strategies that fuel profitable growth and value for all stakeholders. Known for his authenticity and integrity is a trusted advisor on issues of diversity, sustainability, board formation and succession. He has particular expertise in helping boards include sustainable competencies and track record into multi-year or CEO succession processes. As the former CEO of Russell Reynolds Associates from 2011 to 2021, he spearheaded a purpose driven approach to business and led the firm through its greatest period of growth. In his new book, Sustainable Leadership: Lessons of Vision, Courage, and Grit from the CEOs Who Dared to Build a Better World, Clarke tells the stories of dynamic business executives who are using their positions to solve the most complex social and economic challenges of our time. Since 2021, Clarke has co-hosted the Redefiners Podcast, interviewing courageous leaders who are redefining their organizations and themselves to deliver extraordinary results. Clarke won the AESC Lifetime Achievement Award. He is known for his authenticity and integrity. He is a founding member of the 30% Club, which seeks to change gender and diversity at the board level. Clarke is passionate about doing well by doing good. And he serves on the board of Carnegie Hall and the New York City Ballet.
So, Clarke, I guess my first question to you is that Constantine Alexandrakis succeeded you as CEO of Russell Reynolds. Since you all are experts on succession planning, was the transition to Constantine expertly done?
Clarke Murphy: Well, we said we were going to run a process that we run for our clients around the world all the time. So, we did everything you would expect from the behavioral testing. We looked at outside candidates. We had internal candidates. We had a nominating committee that ran the process for about a year. So, it was textbook, and he was chosen and is doing a great job. But it literally we said, listen, considering what we do for a living, this has got to be perfect and no pressure Constantine, you've got to do a great job as well because we've got to show that the process works. So literally we followed everything we do with our clients around the world, around succession.
Willy Walker: So, there are eight board members at Russell Reynolds. And I was curious too, on that note of you all being experts on succession planning. You're also experts on board composition and governance of both companies, big and small. Is eight the ideal number of board members?
Clarke Murphy: I think it's between eight and ten. Again, you would call us a mid-cap company, though we're privately held. And it's confusing because we we're actually formed by Russ as a New York corporation, which has had an independent board of directors since day one. So, we had two retire; you'll see another one joined shortly. But it is run like a public company in terms of Pricewaterhouse audit and audit committee since the inception of the firm. But I think it's 8 to 10. I think more than that... If you're a really large cap company with multiple committees, you might want to get to 12, but really ten is a great number given the number of normal committees you'd have.
Willy Walker: And as you think about the competitive landscape Clarke, of Russell Reynolds versus a Spencer Stuart or a Korn Ferry, is there any advantage in your business to being a public company?
Clarke Murphy: Well, I'm biased, of course, but I think it is massive and you would know it as well. Massively biased in favor of private. If you're going to serve clients well consistently. And I'm not taking a backhanded swipe at our public competitors. I'm just saying I'm a firm believer that if you're in a client service business, you should not be having to worry about your public shareholders at the same time. All you should worry about are your clients and the people who work in your firm.
Willy Walker: And as you think about LinkedIn, I remember when LinkedIn was, if you will, coming online, there were lots of people who foresaw the end of executive search, where LinkedIn was going to disintermediate all of the fancy search consultants and professionals that you have at Russell Reynolds. And my understanding is it’s done almost the exact opposite. It’s made executive search firms more relevant today than prior to LinkedIn. Why is that? Why did we get that wrong when LinkedIn came on to the scene?
Clarke Murphy: Right, and we had the same concern strategically as well. So, who could have imagined when you and I went into business, a resumé was this secret document that got handed off in a dark room to someone else secretly. So, then you put 250 million resumes in the public domain, but that's not recruiting. You know, probably 95% of the people we recruit in the C-suite, in the CEO or boardrooms in 27 countries around the world – they're not looking to change jobs. So, you're recruiting them actively. They're not looking. LinkedIn is making availability of backgrounds and experiences. So, I think it's turned more into a community about enhancing your own career. And of course, you can flip switches to show that you might be looking around or considering other things, but it's become more a community of career development than it has a leading recruitment vehicle. I also think we often say that you recruit for resume, but you fire for fit. So, there's a deep sense of any search firm making sure the culture fit is correct and that the referencing helps you understand not only their performance, but their future potential and will it fit into where this company's going to go? You're recruiting for the future, and this is where some leaders fall if they're recruiting for today or themselves, which is really yesterday, in a sense, you're not recruiting for the needs of the company in the future. And so that's where I think there's a difference between looking backwards and thinking forwards about performance.
Willy Walker: Did the emergence of LinkedIn, if you will, force you and the management team at Russell Reynolds to think about moving the firm in a different direction. In other words, was there any byproduct of LinkedIn coming on that at that time because of the seeming competitive threat? You all said, oh, we need to go deeper into governance practice. We need to go deeper into something that emerged out of that competitive threat coming from LinkedIn.
Clarke Murphy: Great question. So, two things. It did transform, it absolutely transformed the technology industry broadly defined ten or 12 years ago at middle to more junior levels in terms of recruiting, in essence, engineers or general managers of engineers or in software development, etc.. And so many of almost all of those mid in large cap technology companies have their own in-house recruiting, and they're using many different online, LinkedIn being one of them, online databases to recruit for themselves. For us, it was more broadly saying our core client is in fact the board of directors and the chair of the Nominating Governance Committee or as the Chief Executive. And so, what it did is, and we've said, listen, we're only going to focus on the board and the CEO and our candidates in the C-suite. That's all we're going to do in the limited number of services that address their needs. So, replenishing and shareholder activism kind of sped up our work as we launched a board effectiveness business, which was just from lawyers and consultants. Nobody in the search business giving effective governance help to mid-cap and upper midcap. The large caps tend to have pretty strong governance, but there may be a problem with a merger or an acquisition. And then what started out as a management assessment business in the M&A world of 15-18 years ago saying can you help emerging companies figure out who they should pick? After the global financial crisis, boards of directors said, we will never be caught out again. I want an independent third party to say if I have three or four successors, I think that the three or four best. But what if only one of them benchmarks well against the best in the marketplace? Or do all four of them benchmark well, I want an independent party to come help me do that. And then what evolved was a leadership development saying if two of the four can be CEO, one of the four will never be a CEO for a variety of reasons, but the third of the four, if worked on these two things, and probably move to international experience or finance or ops or marketing – may in two to three years be a candidate for CEO. And we got into that business.
So, all of this focused narrowly on the board, the CEO and the C-suite. So, we did focus on the market. We're best in doing and giving longer term advice to a board and a chief executive than four decades of transactions, whether either replace someone where they were expanding. That's what we did for four decades. Now we've ended up in this longer-term advice business around picking the people.
Willy Walker: And final question as it relates to LinkedIn, how tempting was it, as you all saw, the market cap of LinkedIn and how they were basically, if you will, creating a less people-based business and more of a technology-based business for you to try and chase those technology multiples, if you will. I can only imagine that sitting there looking at them, you sort of had a couple of board meetings where you all said, Man, if we did a little bit more like that, we’ll be a little bit more valuable.
Clarke Murphy: That's right. Great question. So, we're really, from the beginning, incredibly close to LinkedIn of all the major search firms and saw ultimately through a lot of discussions that we could help each other. So, as they thought about new products, etc., or how we use their services, we actually were one of their pilots and some of our bigger competitors, Korn Ferry, who were trying to build similar businesses on their own. And in the RPO business, they were directly competing with LinkedIn, whereas we were a big customer of LinkedIn. So, in fact, anything they launched, a lot of things they launched and tested – we were actually the pilot, and we didn't tell anybody. So, we actually looked at each other to see how we helped each other and how we leveraged each community, ours being the C-suite and theirs being a broader community. It was actually kind of fun. So, we enjoyed and continue to enjoy a great relationship.
Willy Walker: So, flipping it around a little bit Clarke, to what I would call talent factories. You wrote a long paper on CEO Academy companies. Russell Reynolds looked at a number of these companies, such as GE, IBM, Procter and Gamble and Honeywell. And you identified that these companies, if you look across the entire corporate landscape, and you all looked at publicly traded companies in your research, and a huge percentage of the people running these other companies came out of these training programs. Clearly some of them benefit from just having scale and the ability to invest in talent management and talent development. But I think that's to, if you will, convenient an excuse for many companies that should be spending more time on talent development. And these companies have really created very special programs and ways about nurturing talent. For those people who don't have the resources of a GE or an IBM, what are the couple of things that all of us ought to be focusing on as it relates to talent management, talent development?
Clarke Murphy: Well, first of all, is the fact: Do they know that you're investing in them? First and foremost, which is the communications around, which is what I think we've learned from the pandemic, is, when we launched the development business, I was nervous that in a recession, that would be something that was cost cutting. As companies discover the empathy gene or not – in the pandemic, Walker & Dunlop will invest in your career and help you get out of the leasing business into the principal investing business or whatever it might be. And people go, whoa, okay, I'm going to stay here. And as somebody said, I'm in Europe all this week giving talks on sustainability in various cities around the continent. Somebody said the other day, we've been talking about the war for talent for 22 years. The war is over, talent won. And I thought it was a great line. And so, talent wants to know you are going to invest in them and then how much is hands on or zoom on apprenticeship and mentoring? And like, you know, Willy, those two questions really didn't jive with the other two. You could be so much more efficient. Think about how you ask that. And the next time you go, okay, thank you very much. Or you're saying, I want you to go into this client experience. I'm taking the back seat, you're taking the front seat, and I want you to make the presentation and give feedback or it's getting really senior mentors to say, how do I navigate this? All of those are leadership development. And some companies realize that the talent war – the best companies in the world – retain the best people longer than their competitors. Yes, they have to have a good strategy. Yes, they have to implement the strategy well. Yes, their supply chains have to be efficient and profitable. But if great people aren't driving all of that, even the former head of McKinsey said, “If you don't have great leaders, strategy loses.” That's the head of McKinsey. So, it's a mindset and then it's an action set.
Willy Walker: To that just makes me think that the overlap between strategy consulting and talent management/recruitment is that they kind of sit on top of each other. And you just said, you can't have one without the other. Have there ever been any of the services that your firm provides ever been thought about being incorporated into a strategy consulting firm? Or are there just kinds of conflicts there?
Clarke Murphy: There are conflicts there and the funniest thing is when the current CEO of McKinsey, when he took over and his first discussion and his first day on the job, he says, “We're not going to go into the recruiting business.” How crazy a statement is that when all the things you talk about at McKinsey? But his predecessor actually went out of the job writing a book about leadership? When you and I started, we followed the money. We followed where the capital was, but with $1,000,000,000,000 in cash on the sidelines in today's world looking for deployment, right now, talent wins because there's so much cash around the world. So, they're looking for great talent. So, I think the nature of a leader has changed quite significantly over the past 20 years and certainly over the last two or three. This hierarchy of the person at the top knows everything – a super person is gone. And it was the vision thing, and then it was offshoring and then it was growth, growth, growth, and then it was efficiency. And I think now there's a guy named Henry Timms who writes a great book about influence and new power, saying that the pandemic told us that the pointy top of hierarchy has gone more into a flatter sense of what's leadership and what's influence. I like to say, to me, leadership is no longer about leading. It's about creating followership. And if nobody's following you, you're taking a walk. So, you have to create followership in what I think younger people want in today's world. And they want to know they can learn. They know you care post-pandemic. They want to know that you'll make them better and that they're on a winning team and they will stay. But this sense of creating followership is a great leader, is something people need to wrap their head around.
Willy Walker: It's a really good way of expressing what is the real challenge that many, many CEOs and leaders face today, particularly given this virtual world that we live in, where you're kind of not seeing the whites of someone's eyes all the time. And so, to your point, that's a great way of framing it.
Clarke, you race sailboats. You've done seven Atlantic crossings, the last one with three of your adult children, which must've been really great. And you've also, while sailing, you've hit whales. Talk about for a moment your near miss with a whale of an object and how that changed your view of the seas.
Clarke Murphy: Yes. I've spent my life on the water. I started in the Chesapeake Bay, not far from where you're sitting right now in Annapolis, Maryland, and then the Agatha River. And then one of my great passions has been ocean sailing with several of my siblings. And so, I’ve done a lot of races and two of the transatlantic races, which are from Newport, Rhode Island to the Isle of Wight or Cowes and England. And you go over the top of the earth like an airplane does and come down because that's the shortest route. Two different times, we hit whales. The first was in the middle of the night. And when a race boat is going 15 or 16 knots, say 21 to 23 miles an hour and goes to a dead stop in a millisecond. This is not a good feeling. And everybody has a job that you do. Somebody is doing a grab bag; somebody is getting a life raft in case something goes wrong. The first time it happened, I was sleeping at the time. And you always sleep with your feet forward. So, if you hit something, you collapse your knees into your jaw. You don't slam your head against the side of the boat. So, I wake up with my jaw and in my knees. I go and open the floorboards to see if we're taking on water, which we're not. The second time we hit it about 8:00 in the morning, this is four years later. It's a longer story I won't go into. Then four years after that, I'm at the helm of a boat going really fast. We're three quarters of the way across the Atlantic. The whole race was in the fog. And it's about 9:00 in the morning and I see a whale breaching about 150 feet-200 feet in front of us. And I see the gray and white speckle and I scream and we're in a big boat going fast with a big spinnaker up 14 story mast. And I scream whale, and I spin the wheel hard to windward and the boat goes into like a long skid on an ice path in a car boat's going sideways, skidding down the ocean. We just come along and miss the whale to discover it is a 40-foot steel container that is covered in barnacles and we all almost died.
I've told my wife, Whitney, we are super well-prepared. I've been doing this my whole life and we manage risk. We really manage risk well. But the one thing you can't manage is if you hit a container, you go down in two minutes and you're gone. There's really no way of coming back. And we miss this thing by like eight or ten feet, the port side of the boat. While I'm freaking out as this happens, of course we're in the skid and there's so much wind in the spinnaker. The force blows the top of the fittings off the top of the mast, and 14 stories of sail cloth goes out over the ocean. And then we had a second problem to deal with, but that's for another day. So, this was a moment in time, let me tell you.
Willy Walker: So that got you very focused on, if you will, it got you focused on the environment, an environment that you're very familiar with and one that you also want to protect you. Then you go to Davos and have a meeting with Lise Kingo, who is the CEO of the UN Global Compact, and I thought it was really interesting Clarke that Lise has been a leader but wasn't getting real traction. She kept saying, you know, the UN Compact continues to write these pieces and everyone's kind of giving lip service to it and what do we kind of need to do? And she was, I guess, the founder of the triple bottom line, which is economic, social, and environmental priorities.
Clarke Murphy: Correct.
Willy Walker: And the two of you, from having read a little bit about it, you realized that you needed to really focus on the people's side of the equation. It's not so much the goals. Let's build a generation of sustainable leaders. And in that and the paper that you wrote, Clarke, said that “The most successful leaders all had a sustainability mindset combined with four specific competencies: multilevel system thinking, stakeholder inclusion, disruptive innovation, and long-term activation.” Can you briefly just summarize either which one of those or how they all work together to create these sustainable mindsets and leaders?
Clarke Murphy: Absolutely. So super briefly, we agreed with the United Nations, that 55 chief executives from India to Singapore to Europe and America were the most successful on people, planet and profit. And we interviewed them and tested them. And they all spiked in these areas. So just let's look at two of them really quickly. And what would you look for Willy Walker in running a company and saying, I need the next generation of leaders because I believe we have hundreds and hundreds of incredibly successful, sustainable leaders, but we need tens of thousands, and we need them now. So, you at Walker & Dunlop, how do you recognize them earlier in the organization to have greater impact faster? So multilevel systems thinking it's like a big mouthful. Systems thinking is complexity. I already am in the real estate world in choppy financial markets. It's complex, multi-location, multi asset classes. And now I'm going to layer on top of that environmental, societal or governance issues. So not everybody deals with complexity as easily as you or somebody else might. So, you're testing for conceptual thinking. You're looking for people who can prioritize the critical and the non-important.
The complexity to make decisions. So that would be one. The other, let's call it stakeholder inclusion. We know a lot about being inclusive now, but it's not the same theme. What we're saying is, would you go to your biggest competitors at Walker & Dunlop and say, hey, all these buildings, all these financings, all this power, all this footprint, what if all of us as an industry created a measurement way to look at financing buildings in different strata or different ways. And we'll do it collectively because our value creation is not in looking at sustainability our value creation, is our relationships, our financing, our rates, our service. So, stakeholder inclusion is saying having the guts to include your competitors or a regulator early on to change the world.
And so, what do I mean? Great example is Maersk Shipping. They put $2 billion into creating clean engines fueled by clean fuels and clean methanol, clean ammonia. And they said, let's do this in industry because the shipping industry doesn't make its money on what engine they use. They make them money and other things they do. And so, they made a commitment because bunker fuel is the dirtiest fuel in the world that ships use across the oceans. So, imagine stakeholder inclusion is saying we're not afraid to involve a group of people. That's just two examples out of four.
Willy Walker: So, on that talk for a moment, one of the CEOs that you profile in your book just talking about Maersk and what they're doing from a sustainable shipping standpoint. One of the CEOs you profile is Svein Tore Holsether.
Clarke Murphy: A great guy.
Willy Walker: I probably butchered his name, sorry about that. You talk about being over in Norway for the launching of the Yara Birkeland.
Clarke Murphy: That's right.
Willy Walker: It’s an 80-meter-long sustainable vessel, which will be the first autonomous, emission free vessel. The thing I found so fascinating about it was when you talk about Maersk, I sit there and say, okay, look, I've seen their containers all over the place. They're a massive shipping company, what have you. But this company is actually a fertilizer company. And I thought it was fascinating. I mean, obviously they need to ship their products all over the globe. But the idea that they got so bought in and you call him one of your moonshot CEOs. Talk for a moment about him being a moonshot CEO and why what he has done has been so unique.
Clarke Murphy: So, we learn through the book, the people I call the “moon shoters.” Because so many people are paralyzed, like, “What do I do? I can't save the world.” Well, the first thing is just decide on one or two things and move on. You don’t have to save the whole world. The moon shoters say, “We're committing, and we don't have all the answers.” So, when Maersk commits to all the methanol fueled ships, at the time, there was enough methanol to fuel the fleet for a month. But Søren Skou of Maersk said somebody else will figure that out while we're building the ships. And then Yara, fertilizer being arguably the second dirtiest industry in the world, Yara said, “We're going to take the ammonia that we need to make fertilizer, we're going to capture the emissions and the methane to then put it with hydrogen and make it a clean methanol fuel with the shipping industry.” Sven had this incredible vision about what he would do. And everybody said, we got to talk out of it. We're a dirty business. This is terrible. People don't care. And he also said, we got to do this in a group.
And one message I would say, Willy, on this podcast, there is this great expression in Africa that, “If you want to run fast, you run alone. If you want to run far, you run together.” So many of these sustainable CEOs figured it out, I got to do this in partnership with other people and then Sven got together with the government of Singapore, SAS Airlines, Copenhagen Airports, among other things. This moonshot then becomes reality because everyone does their little part. I'll just end by saying that the juxtaposition is what I call the 100 percenters in the book, which is that we all know them. There are a bunch of people who need every detail certain, everything nailed down, everything absolutely correct and no variability to go jump in the water. Well, guess what? 100 percenters never get wet because they never make the jump in.
Willy Walker: So, another CEO that you profiled is Lynn Good at Duke Energy. You just mentioned that the fertilizer industry might be the second dirtiest industry in the country and in the world. The energy industry is right up there. And Lynn starts in 2014 coming in where there's a river of sludge that Duke Energy is responsible for coal ash, I guess it was. That was her first sort of not first day on the job, but metaphorically speaking. She just arrived and boom, you've got this river filled with coal ash and Lynn over her period of time and you were fundamental in getting her into the job, I guess. Russell Reynolds and you worked on the search for her, but over the last almost decade, eight years, she's really transformed Duke Energy to being one of the true leaders in America on sustainability and on environmental stewardship.
Talk for a moment about Lynn and her leadership in such a challenging industry, because I think to some degree, we're all caught up with these headlines of West Virginia and coal exploration and Senator Manchin holding the balance of power between being environmentally friendly and being an exploiter of natural resources. And it seems so polarized. How has Lynn been able to lead in such an effective way as CEO of the largest energy company in America?
Clarke Murphy: So, a couple of things. So, Lynn is incredibly calm, first of all, and pretty much everything went against her in the first year. They have 27 million gallons of coal ash that goes into the Dan River. The merger with Carolina Power Light had some issues. Doesn't matter now. And then they say we're going to change that, we're going to shut down a coal plant, which is a good thing in Asheville, North Carolina, we're going to build a new plant, Cogen plant, which has all sorts of other issues around it. So, she ends up with the regulators, the government, and her citizens against the company, in fact.
So, she says we're going to take a long-term view on this and we're going to bring all the constituents to the table. And she said, “How can everyone win here?” And the joke I like, she always says, running a hotel utility, the world's largest, America's largest utility. Every month when she sends them their bill, she tries to talk them out of using her product. Which is kind of ironic. You know, use less energy. Use less energy. And ultimately, in Raleigh, Durham and Asheville, North Carolina, they developed a partnership with the community, with the government and the utility itself that ultimately built this Cogen plant and did a whole bunch of other things around the community and around low income housing where they could provide free energy, but they would turn off it in the middle of the night when you didn't need something in the middle of the day, when you did need something, they put on these monitors. You went to the office buildings of Asheville and said, we will put in free, the same aspect, which again and many of your listeners in the real estate business, these were fantastic outcomes that were good for everyone.
And Lynn and the board of Duke, have committed a couple of years ago to over $50 billion of changing their fleet of power over the next 12 years. And one of the other things we talk about is long term activation. Where I think people struggle as sustainable leaders is are you comfortable that your greatest success will be recognized when you are long gone from the job? And Lynn Good is being recognized now, ten years later. But her greatest success probably comes in 7 to 15 years from now. That's where I think leaders in a quarter to quarter, particularly in the public company world, you know, got to wrap their heads around it to do good and do well.
Willy Walker: I'll take that to the next level of extreme, which is that politicians who are elected every two years have no ability whatsoever to look out any distance. The story I would tell you, Clarke, is when I was Chairman of the DC Water and Sewer Authority, DC WASA which is now DC Water. We were on a consent decree by the Justice Department to build capture tunnels underneath the Potomac River and it was a $2 billion project. And we were borrowing a huge amount of money to build those capture tunnels. We had a project to build a digester to take the solid bio waste from Blue Plains and to put it into a digester is going to cost us $300 million. We had a very contentious board meeting back in 2009-2010 to approve investing $300 million at a time when we really didn't have $3 million to invest in. We got it through the board. We did it. And I will never forget in 2017, I am long done with my chairmanship of DC Water, Mayor Adrian Fenty is far, far, long gone as mayor of DC and almost everyone who had something to do with that actual decision is long gone.
There is the new head of DC Water, the new chairman of the board and the new mayor of Washington, DC on this wonderful ribbon cutting ceremony, taking credit for having built this wonderful digester to create this closed loop that now allows DC Water to not be the largest point user of electricity in the entire DC area and to actually use renewables to power the power plant. But your comment is so important as it relates to the mindset that says that I'm laying seeds that are going to show themselves that are going to bloom many years after I may be out of the seat, but it's good not only for the company, but it's good for society.
Clarke Murphy: Right. Attached to that, I tell you two anecdotal things I picked up from the UN report and in the book. So, I interviewed over 95 chief executives all over the world. Things you didn't expect. Aggressive listeners. Like I was asking the questions, but of course they were asking the questions back. And all of them are incredible listeners, number one. Number two, without question, 90% of them are ridiculously humble. They're actually changing the world. That's the whole point of the book. How did you do this? What mistakes did you make? What lessons did you learn? But so humble and changing the world.
The last one, which comes back to leadership, which I certainly take home with me from this, and I describe it as the learning quotient, the LQ. So, you had IQ as a kid, tested EQ, you know, do you read people well? But to me, this world now is changing so quickly, whether it's digitization or capital markets or sustainability. As an individual, as a leader, are you still learning? If you're an authentic leader, particularly around sustainability, a CEO has got to sit right alongside the vice presidents because they're learning at the exact same moment. I think that then comes to the culture of the company – how high is the LQ of the company itself? And if Walker & Dunlop, if the emerging leaders see you learning alongside them or saying, this is important to me, it should be important to you, those companies end up being more agile and they're going to win or they're already winning this sense of LQ, which I'd never really thought about before.
Willy Walker: So, you talk in the book about Bernard Looney, who's the CEO of BP, being one of those humble leaders. I guess there are two things about that. First of all, you've spent enough time with him to understand that he's a humble leader. But I think about it, search business about people who are out interviewing for some new fancy job and the humility quotient, how you search executives like yourself sit there and say this person has the appropriate amount of humility to be able to handle this job. I think most people who go to meet with Russell Reynolds, and they've been called up to talk about some great big CEO job. The last thing they want to do is show as if they don't know everything on the face of the planet that they can't totally master the job. And so, I find it to be really interesting that humility is one of the key characteristics of successful leaders in this new world. Yet I think most people who are my age, who are interviewing, I think the average age of public company CEOs is 55, who are interviewing for these jobs, want to walk in and say, “I know everything.” What can you give us a step forward? Because Bernard is a wonderful example, right?
Clarke Murphy: Yeah. So, we do joke in our business that anyone who comes in and tells you how humble they are, and that money doesn't matter – you should have two flags up right there. Okay. But I've known Bernard a long time before he was CEO, and he has consistently throughout his career talked about how other people have made him successful or what we/they did together. He also has great listening skills. Not just because, “Oh, he's a good listener. I'll follow him.” Because he learned so much from other people to make him successful and he's not ashamed. That's good for everybody. He's learning from them. He's becoming a better leader. But he talks about communication skills, listening skills, and the ability to know how to extract from listening skills what can help him be more decisive as a leader. So, he's not selfless, but he is humble in recognizing that a lot of other people can help him make a better decision faster than he could on his own. I think generally, someone said to us recently, we're going to go CEO search for a public company. And we talked about humility. And he said, you know, we need a confident leader and a successful one to be a public company CEO. How the heck can you talk about humility? Well, it's really about how you approach the team, the leadership team, the way decisions are made, etc.. So, you know, I'm very confident that there are many humble leaders out there. That doesn't make them any less. We call it ego drive, the drive to succeed. We test for ego drive. That's a good thing, not a bad thing. But confidence, decisiveness, ambition – you're going to have all of those things and still be humble.
Willy Walker: Yeah. So, in the book, Clarke you identify the leaders in sustainability, you segment them into the Born, the Convinced and the Awoken. So, you have from your research about 45% are the Born. I can sort of classify them as what I would consider to be tree huggers. The Convinced are the people who have seen the data and say, “I've got to do something about this.” And then the Awoken who's 12%. Talk for a moment about which one of those groups is better than the other. I mean as you looked at who's really started to move the needle, is the group of Born who's been living this their entire life which is 45% doing more. Is it the Convinced who look at the data that's 43% or the Awoken, the 12%. Who would you rather have leading a big organization?
Clarke Murphy: I mean, certainly the Convinced. So of course, you want all three and by the way I'm the Awoken. I am embarrassed to tell you I drove Suburbans with four kids to soccer games and lacrosse games for a long time. I'm embarrassed to say that I, four Born believer children, are really that super passionate about it and it took near death for me to get my act together. That's not exactly a great claim to fame, but it is what it is. I think the Convinced might be more persuasive in this intermediate moment that we're in today. And one thing we haven't talked about, as I use the term sustainability, I do not use the term ESG. Not because it's a political football, but because its people have lost sight of the fact that it's a measurement acronym. It is not a movement; it is perceived as one. Or a noun that is all encompassing. Sustainability to me is the umbrella above the Sustainable Development Goals, and ESG is just a piece of it. So, I think that in this moment in history, to accelerate our progress and accelerate the identification, development and retention of great sustainable leaders who are ready to go but need development. Those Convinced probably are a more powerful gang than the Awoken. You know, oh my God, I had an epiphany. Or those that are lecturing you perhaps because they've been suffering so long, no one listened to them. So, I think we need all of them and we need to reward them, celebrate them and listen to them. But equally, I, in this book, and institutional investors preaching at business executives is not the way to success.
Willy Walker: So, a couple of things on that. One, Kate Brandt was the chief sustainability officer at Google, is one of those Born people. And as I read her profile and having been born in San Francisco and grown up next to John Muir Park and worked in the Obama administration, to your point the Convinced in today's kind of very hyper partisan polarizing world seemed to have a better lane, if you will, rather than the Born. The other thing that I thought was really interesting that you point out in the book, Clarke, is that those people who really get this, typically have worked on two or more continents, so they have international experience. The second thing is that they have experience with supply chain and operations. I thought those two things were super interesting for people to take out of. If you're trying to find someone who really understands this, having international experience and then also having seen the impact of what you do on a day-to-day basis from an operations or supply chain management standpoint, makes these people have real insight into what they're trying to combat, if you will.
Clarke Murphy: And incredibly powerful. If you understand the material sourcing, the potential circularity of your product, development or distribution, this operational excellence, which is in the guts of the organization. Pre-pandemic, you wouldn't have put supply chain officers as the most celebrated function in the corporate world. Right now, in many cases they are and some they aren’t because they haven't been able to adapt, but the supply chain reliability, sourcing, circularity is incredible. And so those listeners here, if you don't understand who is running your supply chain and what they are, then you're going to miss out on a leadership moment. Or number two, if they're great at their job, you better put a big old bear hug around them because this is a pivot point for many of the companies in the world.
Willy Walker: You talked a moment ago, Clarke, about investors. And we've all heard, we've read Larry Fink’s annual letter and Larry's big focus at BlackRock on this. You point out in the book that Robeco really kind of started this and then you profiled Neuberger Berman, which I thought was really interesting. They've got more or less $400 billion of AUM, but I think it was in 2016, the data you put forth was that only 25% of their funds were invested in sustainable companies. And this past year they've gotten up to something like 86% of their funds are invested in companies that have the principles for responsible investing and explicitly in systemic inclusion and ESG. That's quite something. I mean, it sort of says to me Neuberger Berman is understanding where the world is going and putting their investors’ money into really smart companies.
Clarke Murphy: Absolutely. So, one of the common traits from Lynn Good to George Walker who runs Neuberger Berman to many of the other executives we talk about, sustainability to them is not an initiative or a project. It is their strategy. It is the strategy of a company. It's embedded in everything they do. At Neuberger Berman, fixed income equity, private placements, anything, every single investment note that comes to an investment committee, 100% of them has a sustainability note attached to it. 100%.
So, when China said they would meet with BlackRock, I think J.P. Morgan and then Neuberger Berman is the third firm to come in to operate in China. They did that because China said, “Better or worse, Neuberger Berman lives the sustainability analytics more than anyone else in the world we've seen as an investor and we want them in China” and then people are like, who's sitting in Tokyo or in Seoul or in Sydney. You might be saying, who the hell’s Neuberger Berman? It's really powerful how they approach it.
Willy Walker: That's really fascinating. On the investment side of things, you have a great quote in the book, Clarke. From Kasper Rørsted, the CEO of Adidas. “A failed product innovation does not mean you stop innovating, just learn from it. Our board told me to keep on the journey and we did for years.” Talk about the Parley Shoe and the use of renewables on that.
Clarke Murphy: Yeah. So, Parley Shoe is the first performance sneaker that was produced from ocean reclaimed plastics. So that big swirl in the Pacific Ocean we've all heard about, they went and said we're going to create a performance sneaker that the upper canvas, laces and clearly the materials in the sole all of it comes from reclaimed plastics. And we're going to create the price point, engineering and they had issues with the supply chain at first, which they had to resolve. They came back and produced the Parley and then they doubled down and said nine out of ten of our new products will have reused materials, not ocean plastics. But they said reused/recycled materials to really commit to it and understanding their consumer. Knowing they'd say that about the Parley shoe, which he was very open about, and Kasper has been in the press a lot recently, they were so focused on the materials and then the supply chain and the sourcing and the manufacturing – and nobody bought the shoe.
So, Kasper goes to the superstore on Champs-Élysées in Paris, gets on the stool, spends a half a day putting shoes on people's feet, measuring and he said, “Why don't you look at the Parley?” and all the French said “Qu'est-ce que Parley?” And he'd forgotten to market it. He'd done everything else perfectly, but he had not marketed. And his lesson was I needed to have a vision from end to end, what Heineken calls “From the barley all the way to the bar.” And Heineken's incredible at what they do. And Kasper learned a huge lesson. His board supported him at that time that he needed an end-to-end vision for what he was doing, not just the product itself.
Willy Walker: Talk for a moment about Zhang Yu, the founder and chairman of China's Broad Group, and what he's trying to do from a sustainable building product standpoint. I found it to be amazing that one of the most innovative CEOs in this space actually is inside of China. I mean, what you just said about Neuberger Berman is somewhat contradictory to what many of us think. But talk for a moment about Broad Group and what they're trying to do.
Clarke Murphy: So absolutely incredible. Willy, I'm sure you have listeners in the construction business. They have these fascinating videos. You can look them up, rolled aluminum. Tubing, in essence that the way it is laid out and the way it is stacked is as strong or if not stronger than steel. And his company has assembled entire apartment buildings in days because it’s prefab and then put in modules. And it’s incredible in terms of the insulation, the speed with which it can be assembled and the density and strength of this rolled aluminum tubing. He’s out to change the world, literally change the construction world. Very patient. He’s got an incredible number of patents, so we had to interview him through translators. The whole thing was a fascinating conversation. But what they have been able to assemble/construct is astounding.
Willy Walker: Wayne Frederick, who was the president of Howard University, came and spoke a couple of years ago. And one of the comments that struck me, Clarke, was that Wayne said, “I'm not a big fan of chief diversity officers inside of corporations because I think that CEOs need to be the chief diversity officer.” And I thought that was a striking comment. And any good CEO who wants to make diversity a priority may have a chief diversity officer that needs to eat, sleep, and breathe it. But on Chief Sustainability Officers, (CSOs), you outline what makes a good chief sustainability officer in the book, someone who can deal with ambiguity and complexity. There's really no playbook here as it relates to these issues. So, you can't know all the answers when you went in. And interestingly, about half of all chief sustainability officers are women. And in your study, 14%, they're the first person ever to hold this role. So, there's no playbook to play off of. What else should people think about as they think about focusing on sustainability and putting someone into that role?
Clarke Murphy: This role, heretofore has been largely on influencing skills. The more they understand the operations and the business, obviously, the better. But their ability to deal with ambiguity, which is a measurable competency in human beings and their agility, a measurable competency and persistence, a measurable competency. There's an unusual construct of the most successful CSOs who basically can roll with the punches, but their persistence, their ability to bring people along with them and look at the business horizontally, not vertically, to get things done consistently across the business, across the corporation. And I also feel very strongly they need to report to the chief executive officer where the company changes. And it's embedded in everything they do. But their characteristics and competencies back to listening skills are super important to win the head of supply chain, the CFO, the head of marketing, the head of operations across the bench.
Willy Walker: So, I want to close, Clarke, on an idea that you put forth in the book that I thought was fascinating. Such a great frame. And that is a lot of people talk about sustainability, they talk about these companies that create these big, long-term goals. And there's kind of this push pull right now, clearly on oil, for instance, of, you know, we ought to divest from fossil fuels and at the same time, we need it today in the war in Ukraine. And you use the war in Ukraine is what I believe is an incredible example of how the international business community moved at an incredibly fast pace to divest hundreds of billions of dollars of investments from Russia because they didn't agree with what Russia was doing. I sat there and sort of thought to myself, when are we going to get to the point where there's a calling from the international community on creating a world that is non-sustainable to do for this broader issue of sustainable investing, taking care of our planet and things of that nature that gets us to the point where you can have the swift action that took place in Ukraine? I mean, you go through bullet by bullet of the massive investments that major corporations ditched in a very short period of time. And I sat there and said, why was it that what Putin is doing in Ukraine is so terrible that you have to get out tomorrow and yet we're not sitting there saying what we're doing on this, this and this is so terrible that we also need to get out tomorrow.
Clarke Murphy: Right. So, I don't know how many hours we have left to talk in this podcast, but this might consume many of them. So, the first thing is you highlighted there's a shift in governance. These are boards of directors, of course, CEOs as well. But there's a shift in governance, I think, post-pandemic in a new world we live in. That said, this is so important. We will be judged on how we handle this. And so, I think we just went through a seminal moment.
Now to oil and gas, the reality is you read the same things I read. We depend upon fossil fuels for a couple of decades to come, but we need to take the profitability from those fuels to fund renewables in the energy transition. David Rubenstein on my podcast yesterday saying, “Listen, this is the biggest shift in capital of any single theme he had ever seen. Funding the energy transition and the opportunity and the job creation of the energy transition.” So, the question is, can fast moving governance address a 20- or 30-year shift? I would say maybe not that on fossil fuels, but faster moving governance can take a stronger stand on sustainability, broadly defined, which may be uses of water – hugely underrated issues for our planet, uses and sources of clean water, health care in the emerging world, mortality rates, hunger. These are things that also fall under the sustainability umbrella. So, I agree with you. I think I look at it as a barbell. You have the pressure of institutional investors at one end of the barbell, and you have the pressure of employees and consumers deciding where they'll work and what they'll buy at the other end of the barbell and the bars bending a lot fast. I believe I'm an optimist that the governance of companies will move fast, so the bar doesn't break.
Willy Walker: Thought it was so interesting as you're talking about kind of the transition you point out, and it's one person. But I thought it was fantastic that a coal plant engineer was being retrained and going to a hydro plant and that previously they said, no, you can't go from a coal plant to a hydro plant. They took this one gentleman, and they retrained him and got him into the hydro plant. I said, you know, that story needs to be told a thousand times in West Virginia, over and over and over to try and make it say, you're not losing your job, we're going to take you and retrain you in this new era of power generation rather than just we're going to wipe out all the coal mines and your job is going to go with it.
Clarke Murphy: We can learn a lot of lessons from vocational training in Germany and France about economic change in terms of that coal miner in West Virginia doing other things. We know that is where governments can come to work in the private sector and a great partnership because we have the wherewithal to create these changes in this transition. But part of it is helping the workforce get there, just like that person going from fossil to hydro.
Willy Walker: Yeah. Clarke, the book is fantastic to anyone who is listening today, as you can tell, I read it, loved it, ate it up.
Clarke Murphy: I'm very impressed. You read every sentence, that's for sure!
Willy Walker: It's really great. Thank you for coming on. It's due to your brother that I know you. And so, to Bern, who I'm sure is listening and to Howard, who introduced me to Bern. Thanks to both of you for making this happen and thanks for all you're doing and good luck in this next chapter.
Clarke Murphy: Great, great pleasure. Thank you for having me here today. And thanks to Bern and Howard as well.
Willy Walker: Take care.
Clarke Murphy: Cheers! Bye bye.