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Bob Rubin Speaks to Select MBA Journalists

While many ECs were slaving away at their summer internships and the RCs were relishing their final weeks of vacation, a group of only nine writers and editors from the nation’s top business schools met at Citigroup for an intimate breakfast meeting with former U.S. Treasury Secretary Robert E. Rubin.

Robert (“Bob”) Rubin, currently a Director and Member of the Office of the Chairman of Citigroup, has conquered both the public and private sectors. After graduating from Harvard College (President Larry Summers is a friend), Mr. Rubin worked at a law firm before settling at Goldman Sachs. At Goldman, he rose from Associate to Co-Chairman in less than twenty years. However, in 1993, Mr. Rubin joined the Clinton Administration, first serving in the White House as Assistant to the President for Economic Policy, and then, in 1995, as the 70th Secretary of the Treasury of the United States. He joined Citigroup in late 1999.
Faced with eager reporters from Wharton, Kellogg, the University of Chicago, MIT, UCLA, NYU/Stern, Columbia and (of course!) HBS, the soft-spoken Mr. Rubin rose to the challenge, deftly guiding the conversation away from comments about individual leaders (like the President) to general policy issues.

Naturally, the current host of accounting scandals came up right away. Mr. Rubin cautioned that while numbers can be useful in evaluating businesses, he’s “always thought it’s more important to focus on underlying dynamics,” which are more fundamental than sales number fluctuations.

“The heart of the matter,” he asserted, “lies in accounting. You have quasi-regulators that are also profit-making centers… You have to create some sort of balanced structure.” He later added, “It’s tough. Accounting is a business of judgment, it’s not a mechanistic thing.”

Mr. Rubin took a firm stance on corporate governance. While declining to comment on the current Administration’s recent actions, Mr. Rubin did mandate, “The spate of problems need to be taken and dealt with very, very seriously.” Whether through civil or criminal law enforcement, he said, a system must be developed to prevent future ruptures in corporate ethics.

One remedy he proposed for the problems was less management by committee and more decisive CEOs. “The strength of the CEOs is one of the strengths of our system. We want an independent board of directors, but maybe there could be some percentage of meetings without the CEO present.”

Mr. Rubin attributed the current “period of adjustment” to the set of imbalances that arose from the “extended good times” of the 1990s, a period with “truly remarkable economic conditions” in which public policy played a critical role. Although he hoped the good times would continue, Mr. Rubin asserted that he knew that was impossible; luckily, the Fed was there to “get us back on track… although the Fed is not the be all, end all.”

Now, facing challenges such as geopolitical issues, terrorism, and the radical fundamentalist portion of the Islamic Movement, he predicted the short/immediate term outlook was positive, but that the U.S. could “continue in this for longer than we expect.” He urged realism in expectations.

Mr. Rubin explained that the bull market, which started in 1982, gestated in a benign geopolitical atmosphere, whereas today everything is uncertain: the fiscal situation has “dramatically deteriorated,” there is a backlash against globalization, and he has “no idea what the stock market will do over time.”

In the context of all the hurdles, he lauded the long-term fundamental strengths of the U.S. economy and cited the “agile, immense investment base” as a sign of hope. “The system has worked very well to promote agility and willingness to change. We shouldn’t erode our traditional strengths, so we have to approach the situation with balance.”

Mr. Rubin also suggested that improving the public school system and solving problems in the inner cities were extremely pressing issues to consider.

When questioned about the long-term sustainability of the dollar versus the Euro, he decisively responded, “Look at the size and strength of our economy. The likelihood is high that we will be the world’s primary reserve currency.”

When asked to give the current Administration a letter grade on policy, he declined to comment. His closest judgment came when he admitted that he considered the tax cut of 2000 to be “a mistake” both because of the enormous cost incurred ($1.7 trillion in debt service), and the subsequent unraveling political cohesion around fiscal discipline. The administration’s steel policy to restrict imports, he felt, was also a “very bad decision.”

As many in the room were wondering, Mr. Rubin responded to a question about the future of the investment banking industry by saying, “It’s hard to know. There was tremendous consolidation in the ’90s… but the pricing of the whole market wasn’t sensible. There was a tremendous amount of M&A activity, because it was a good economy with good markets.” He also remarked that there was still an enormous need for investment banking services, and predicted that banking would “continue to grow and occupy an important role in the global economy.”

By far, the most emphatic stance Mr. Rubin took while lingering over his bowl of blueberries concerned the recent allegations Joe Stiglitz made against Stan Fisher (in his book about the IMF). “I think that was ridiculous! Nobody, zero, takes it seriously. Stan has unquestioned integrity.” Mr. Rubin emphasized his goodness as a person and his bright, thoughtful nature. “It’s shameful what (Stiglitz) said about Stan.”

Mr. Rubin, who as Secretary of the Treasury played a leading role in preventing financial crises in many countries, discussed the positive role of the reform programs and the IMF. Mr. Rubin used the reforms in Korea, Mexico, Brazil and Thailand as evidence of success, while naming the failure to adopt reforms in Indonesia as the reason for “not doing well now.”

Yet, Mr. Rubin admitted, “It’s not easy. People write textbooks about it, but the fact is, it’s not easy. The reality is these places are very busy… but we avoided a world crisis.” Even in his recent trip to Singapore (Mr. Rubin “travels a fair bit; more than I want to and more than I intend to going forward”), he was constantly asked what would happen with the global economy as other nations looked to the U.S. for direction.

As far as management goes, Mr. Rubin credits some of his own expertise to an old Goldman mentor, Gus Levy. “Gus had a very simple management tool: he yelled. And it worked.” He continued, “I thought the world of Gus, but I have always liked working with people…”
“The way you get to the right decision is you get a group of really smart people together and hear what they all have to say. Everyone’s got something to say, and there should be a democracy of ideas. It shouldn’t matter what age they are or what titles they have; it’s what they have to say.”

Mr. Rubin affectionately recalled cold calling a younger person at a meeting who had stayed silent throughout a heated conversation. “Well, what do you think?” he challenged. The poor guy just responded, shocked: “Me?!”

In closing, Mr. Rubin offered the following advice to MBAs in today’s uncertain economy: “Life is always uncertain. I think people had serious judgment issues thinking the ’90s were reality… ”

He continued, “I think that no matter what you do, it’s enormously worthwhile to get involved in some other dimension of how our world works. I found public policy fascinating… I’m not saying ‘do good for society.’ I’m saying ‘do good for yourselves.'”

With that, Mr. Rubin had his picture taken with each of the guests and silently retreated behind the slick, mahogany doors of the Citigroup empire.

September 3, 2002
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