May 15, 2009

Crisis Management 101 for the Speaker of the House

pelosi

May 15, 2009 at 2:00 a.m. EST on C-span. I watched Nancy Pelosi, Speaker of the House, give a press conference about when she was briefed during the Bush Administration, what she was told by the CIA and then she destroyed her credibility.  

So what did Nancy say and do at the press conference?

“My biggest concern my whole life has been torture.” It’s her opening statement. The CIA briefs a Committee that Pelosi is on (I’m not sure which one because she didn’t make that clear) on September 4, 2002, which is less than a year after 9/11/2001 and during that briefing torture (waterboarding techniques) are discussed.

A reporter asks Nancy about the briefing on September 4, 2002. She fumbles through her papers. Licks her lips. Her eyes dart throughout the audience. “Let me find my notes, it’s in here somewhere. The papers are all messed up.” She can’t remember what she said a few minutes ago? Torture is critically important. She’s in a meeting a year after 3000 Americans are killed and she can’t remember whether or not torture is discussed.

Then Nancy is asked another question by a reporter. And Nancy responds, “I had a war in Iraq,  I had to get a new President and new congress elected; and I did just that. Besides, it’s the Republican’s that started this.”

Another reporter asks her about health care and the rest of the reporters laugh. She castigates them.

And Nancy Pelosi wants to spend our tax dollars on a truth commission? When her body language says I sold 9000 earmarks. 

Stop worrying about the other guy. Focus on your problems. Here’s your crisis management plan: 

1. Call Leon Panetta and apologize. (Not a good idea to call the CIA liars for future reference!)

panetta

2. Call a press conference and tell the truth. You were “confused”. You made a mistake. It was war time. You looked back at your notes and realize that waterboarding WAS discussed and approved the torture techniques.  It was war time Nancy. 

3. Stop focusing on the past and start focusing on the future. It’s Economics 101.   The more people that lose their jobs…the more in jeopardy you are. Then, take the heat. Why? Because you screwed up, somebody gave you bad advice and it backfired. President Obama got bad advice and it back fired when he listened to the AG, and not his generals. President Obama took the heat didn’t he? You need to do the same. And move on. If you don’t do that, I’m fairly certain the Democrats will fry you, not the Republicans.

Nancy, some advice. The world can forgive mistakes.  It’s HUBRIS we can’t forgive.  So if you want to distance yourself from Bush, then learn from his mistakes, I suggest you begin by apologizing for yours and move forward instead of backwards.

Copyright 2009 Ev Nucci


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May 15, 2009

How to make sure you aren’t victim to another Madoff

The buddy system is alive and well on the street.  It’s understandable that when you have achieved a certain level of success, are friends with certain people that questions aren’t asked—Right?   People assume you have character and virtue.  You MUST possess that coveted quality none can quantify, that illustrious unmistakable secret sauce.

It’s much too hard to believe the truth…right?  Just ask the SEC.  They get plenty of love letters.

In 1986 there was Dennis Levine and the insider trading scandal, Sam Israel and Bayou, Bernie Madoff is just the latest.  Greed, Dishonesty and criminal activity is not new.  Is it any wonder the markets froze because no one trusted who was on the other side of the trade? And it all comes down to something so simple…integrity. Yet all so elusive.

And across the the globe?  It’s like a forest fire wiping out the underbrush.  A lot of trees, and in time, then will be a re-birth—just like in the forest.  Incumbency is meaningless.  Chrysler, IBM, GMAC.  And our counterparty of the future?  President Obama!!!!

But if you look at our history, unique to our country is our entrepreneurial spirit.  Throughout the world we are envied for our optimism, our skepticism for authority and lack of tradition as a competitive edge—-all necessary to respond quickly to change.

Years ago I founded a company and sold it five years later.  It was purchased based on what was on paper.  Because of that experience I am a fanatic about due diligence and what do I check?

  1. Consistency
  2. Integrity
  3. Validate and verify my intuition

If any of those three items don’t feel right to me, I walk away and so should you.  I’ve now worked with—and for two of the most admired companies in the world, both BlackRock and Johnson & Johnson.  I know smart people with integrity.  I also know smart people who don’t have integrity…

Copyright 2009 Ev Nucci


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September 25, 2008

Paulson, Goldman and Soros. What it really means when you give a blank check to Paulson

When you evaluate Goldman’s 10K, it’s easy to see that they stopped being an investment bank and became a derivative player which Buffet had warned about for years. And if Goldman was going to be a derivative player, and they set the market standard for Wall Street, then everyone else wanted to play too! 

Everybody had to have their hand in the till. If Goldman was making money as a derivative player, then couldn’t we? Thus Merrill, AIG, Morgan Stanley all got into the swap game.  The problem is that no one…including Paulson knows what really exists.

The American taxpayer will not know the value of the poker hand their buying. Goldman bonus compensation is just round the corner…as it the rest of Wall Street’s. It’s not the CEOs you need to worry about…it’s everyone.

Wall Street starts evaluating people’s performances in September/October and November. Bonus is paid out sometime between February and April. And what is the average bonus Goldman partners are eligible for? For the thousands of people who aren’t partners?  They get paid on average $260K salary with a bonus of about $400K. Then there are Managing Directors who aren’t partners, they’ll get anywhere from $1-2 million. And the Goldman partners? Anywhere from $5 to 15 million. Now let’s look at how many Goldman ‘s partners there are…at least 400.

In 2007, Goldman Sachs allocated nearly $17 billion for salaries, benefits and bonuses in the first nine months of the year.

In a few months, at least $7 billion will be paid out to Goldman partners in bonus…which doesn’t include  bonuses for the rest of the firm. Paulson is purchasing this “poker hand” on behalf of the American taxpayer and ensuring that Goldman partners get their bonus. Great job Paulson.

In today’s Financial Times, George Soros rightly states,

“Congress will be abdicating their responsibility if it gave the treasury secretary a blanque check. He doesn’t inspire the confidence necessary to give him discretion over $700bn.”

First, he let Lehman fall…why? They were the sacrificial lamb. What if the government doesn’t intervene in the mess the boys on the street made?  The government gave Paulson a blank check with Fannie and Freddie Mac. Fannie and Freddie has been bubbling with serious systemic problems for years. Aside from the fact that politicians didn’t understand it, Fannie and Freddie were poorly conceived. The reality is you cannot have a government owned entity that functions as a public entity and compensate people accordingly. They were a run on the American taxpayer…so a government take over is a good thing.  How are you going to manage the problem now?

Soros says,

“Paulson’s proposal to purchase distress mortgage-related securities posses a classic problem of asymmetric information. The securities are hard to value, but the sellers know more about them than the buyer: in any auction process the Treasury would end up with the dregs. The proposal is also rife with latent conflict of interest issues.”

What’s he mean? Nobody knows what the paper is worth except for maybe the owners. American taxpayers don’t know what we’re buying. Who sets the price? The buyer…does this make any sense?

George Soros and others agree. Soros has more integrity and objectivity than Paulson who is ex-Goldman. It’s good to hear that someone else is as scared as I am about a blank check to Wall Street.

Copyright 2007 Ev Nucci


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September 16, 2008

12 Crisis Management Lessons from Lehman Brothers

When the media frenzy dies down from pundits that have never built a company, hired employees, or developed a mission statement about what Dick Fuld should have done; thousands of people will have lost their jobs and the issue will be what can you learn from this?

Lehman went down and it was evident in April. Why? Because of what didn’t happen…

David Einhorn asked a simple question of Lehman’s CFO, Erin Callan during a conference call with Wall Street analysts in March, 2008. Einhorn happened to be on the phone and asked a legitimate question. Answers weren’t forthcoming. So a dance began. Various people tried to tarnish Einhorn’s reputation, a month later Lehman’s shares plunged 40%.  What did Fuld do?  He sued a Marubeni a Japanese trading company 35 billion yen in unpaid fees.

In April, Einhorn announced he was shorting Lehman stock. Callan called Einhorn and asked for a copy of his speech and he complied. And Callan? She spent her time badmouthing Einhorn. Why would you do that? Try to deflect attention from issue and blame someone else? Something was drastically wrong. Lehman shorts stock too.  It didn’t make any sense. But Fuld did nothing. The stock dropped 40% and he did NOTHING!!!

What should have happened?

At this juncture, Dick Fuld should have gotten out in front of his investors, his clients, the market and he didn’t.

Study history…what did similar companies do in this situation?

When in a corporate crisis I often wonder why executives don’t study Johnson & Johnson and look to Jim Burke for leadership. Jim Burke, J&J’s Chairman learned a women in Westchester, NY died when her Tylenol capsule was laced with cyanide on February 10, 1986. This was the second crisis to occur…

In the fall of 1982, seven people died in Chicago with cyanide laced Tylenol capsules. J&J recalled the Tylenol and introduced a triple-sealed, tamper-resistant package.

This time, by Feb. 13 the Food and Drug Administration discovered a second bottle of cyanide laced capsules and warned consumers nationwide. J&J began a recall in Westchester and asked retailers nationwide to remove the capsules from the stores. J&J canceled all television ads for Tylenol and established a toll free hotline. The stock dropped $4 a share on February 14 and on Feb. 17 the company began a nationwide recall and announced the end of all nonprescription drugs sales in capsule form.

On February 18, Jim Burke went on the Donahue program and discussed the Tylenol crisis. Burke went on a national media tour even though he’s a private man and abhors the spotlight. Jim was going to do whatever needed to be done to save J&J…meetings with five other executives were confrontational because they needed to forge consensus.

Johnson & Johnson lives it’s credo, it’s ingrained in the culture of the organization, I know because I worked there. It’s not lip service. It is safety above profits. The Tylenol crisis cost about $150 million after taxes, but consumer safety that mattered most. Within the span of four years, J&J experienced two major crisis’s and what did they do?

J&J figured out enlightened self-interest. If you respect your clients, your customers–tell them the truth, look out for their interests, they’ll give you a second chance.

Wall Street can learn from Lehman and Johnson & Johnson.

All Dick Fuld had to do was get out in front of this in April, address the financial situation, support his CFO, develop a new plan of action, if there were mistakes admit them, and be realistic. He could written down his percentage of the 62 trillion notional credit default swaps (herein lies the problem–the credit default swaps!). And for those of you who haven’t read a 10K…Morgan Stanley’s and Goldman’s leverage went from 23.6 to 30.7.  And Lehman brought their leverage down.

For those of you who think Lehman was “worthless” and don’t know any better, BlackRock bought a large chunk of Lehman stock in June.  They wouldn’t have done that if Lehman was worthless.  Not BlackRock. For those of you not in the industry, BlackRock is a preeminent asset management firm known for their risk management.  The problem with Lehman was Dick Fuld’s refusal to understand what Lehman was worth!  It’s called the art of negotiating…he thought it was worth more than it was.

He should have sat down with his lieutenants and asked the question, what are our options? Instead Fuld demoted Callan, in June after raising $6 billion in new capital, after disclosing a $2.8 billion loss the quarter before, then fired a long time lieutenant and friend Joseph Gregory. Then the stock fell. What message did he send to his customers and investors?

You need to be 750 times more committed to your customers, clients and owners than anyone else to be successful. You must have integrity to your owners, your stockholders and Fuld didn’t do that.

When you are a public company your fiduciary obligation is to your stockholders, your customers and your employees. As a hedge fund your fiduciary obligation is to your investors and your employees…it’s not all about you.

How do you make sure you and your firm don’t end up like Dick Fuld and Lehman?

1. Surround yourself with good people that challenge you to mitigate executive hubris (Dick Fuld’s problem in negotiating Lehman’s worth).

2. When there is a crisis, emulate other companies that have successfully managed through a crisis

3. The minute a crisis begins, hire a consumer research company to start polling consumer and client perceptions about your organization. Order continuous polling throughout the crisis which will help you avert a crisis of consumer confidence.

4. Identify five executives on your “crisis team”.

5. Develop a risk scenarios and contingent plans.

6. Identify a Public Relations expert who can help you through the crisis (before the crisis not during!).

7. Create a culture that is committed to challenging one another.

8. Create a board of director’s that has at least one “naysayer” on it. If they’re all yes people, you’re in trouble.

9. Make sure someone on the board has P&L expertise, preferably an entrepreneur…forget about the Fortune 500 guys!  (forget about the cronies, you see how far that got Fuld).

10. Recognize your weak spots. (y chromosome issue—what is it you might miss? Why is BlackRock’s #2 a female? Think again!).

11. When there is a problem, develop the plan and get out in front of the issue right away. Don’t procrastinate, which includes a media plan!.

12. When people’s livelihood’s depend on you, it better not be about your ego, you need to serve the greater good.

Just an FYI.  I’m not an PR consultant or crisis communication expert.  During the Tylenol crisis I started my career at Johnson & Johnson where I learned the integrity of business…and it has stuck with me.

Copyright 2007 Ev Nucci


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July 14, 2008

Donald Putnam – the one percent

I went to Lipper’s Hedgeworld in June 2008 and was pleasantly surprised. Donald Putnam of Grail Partners was the keynote speaker. I was fascinated with his perspective on the market, the industry, and people. He was engaging with a great sense of humor.

My first interview with him is as follows:

DP: It is the nature of the talent that the most talented are many times more talented than the slightly less talented. Bill Gross or Larry Fink, two examples you are familiar with, are not five times more talented than the next person, they are ten times more talented than the next person. They are not just more talented, but differently talented. They aren’t just working harder or just a little smarter. They have a different ear for the music, a different way for interpreting, a different way of reacting.

The typical paradigm is to think of talented business professionals in terms of people who are smart. We might be a lot more successful if we looked at people who are talented in terms of how artists are because they are often tortured by their talent. They are often incompetent in other areas, terrible with people, have fairly dramatic flaws.

But the most talented of them can no more help doing what they do than can any other artist help being an artist. They are not employees, not professionals, they’re not doing a job, so they don’t behave like normal people.

I think that’s true of hedge fund managers. The conventional wisdom is that this is portfolio management in another financial context and it’s not. It’s a particular perverse instinctual for talent to foresee how things will workout that most people don’t have. The guys who do have it, make it work in spite of all the conventional wisdom.

EN: What is the unique talent?

DP: I see a common behavior pattern, whether you are talking about extremely talented designers, business people, artists…all of them share one critical attribute which is things are that opaque to others are intuitively obvious to them. They draw different conclusions from the same facts and to some extent at the root of their success is alienation from other people and the way other people think. In the investment world we call this contrarian thinking.

The ability to be contrarian is to differ with you. How can I differ with you if I identify with you? You have to be, to some extent alienated to take a different perspective. And I think these guys generally couldn’t care less if their perspective is different. They don’t particularly enjoy being the dissonant voice, but they don’t mind it either. So they have a kind of almost semi-autistic alienation.

The very best investors are tone-deaf to the consensus. They do not hear or see the consensus view, they form their own view, their own intuition as to how the future will play out and are often willing to act on that. Sometimes they get positive reinforcement, they like to be swimming against the crowd. Not that they enjoy the confrontation with other investors, or confrontation against the consensus, some do some don’t, in fact a lot of investors, the best investors will invest their portfolios in a very specific and personal way. If you make them defend what they do or try to change the consensus because of what they do, they have no appetite for the debate.

Warren Buffet is a little bit of an exception in this regard, he is happy to teach why he believes one is better than the other. But many great investors don’t care, they don’t care if you learn it and if they communicate it.

It’s a unique perspective on life. They invest in terms of the conditions that create a certain economic outcome and the ebb and flow of arithmetic; in terms of the interactions of big economic systems, companies and portfolios with societies and particularly currencies, inflation rates and they hear that music, they hear that symphony.

They don’t hear or relate to the people who are playing those instruments, to them the first violin is not a first violinist. It’s just a first violin, all they hear is the music. They don’t have any empathic relationship to the violinist. And that alienation is in part at the root of great investing. Because the consensus is almost always wrong. It maybe wrong is a small regard and in a large regard, but if you go with the consensus, you are almost always wrong.

In Wall Street terms, the financial world has two faces, one face is outward to those who are its clients. And conformity is prized in that world. Conformity, consistency and so on. But there are no great talents any more in that side of the business, the old Merrill Lynch thundering herd, way to sell.

In a perfect world the men and the woman all dress alike, they use the same sales techniques. What you are looking at is the industrial revolution idea of the assembly line brought to the financial services. OK, that was done 100 years ago by Merrill Lynch, more than a hundred years ago and it’s working just fine and it works on a large scale. And it works on a large scale with retail channels of distribution and on a small scale within institutional channels of distribution.

On any street at 7:00, or 8, or 9 at night you can spot the equity salesman, the bond salesman, the institutional salesman, the various kind of salesman that exists. The closer you get to investment banking and investment management the closer you get to outcome driven success, as opposed to process driven success. And if you live and die by the outcomes, whether you’re an investment banker contemplating a merger, or an investment manager establishing a portfolio the more you are driven by the outcomes as opposed to the process the more you are driven by contrarian thought. Contrarian thought requires some kind of alienation from the consensus.

Differentiated by the consensus, differentiated by how they react to failure, the conventional 99% of the world doesn’t like to fail, the One Percent enjoys failing if its in the pursuit of outcomes they can enjoy identifying with. They aren’t’ emotionally involved with outcomes. They want validation of their unique perspective,

Steve Jobs was more emotionally rewarded by the consumer reaction to his Apple iphone that to the particular economics. That sense of the outcomes is similar to the top hedge fund managers.

Copyright 2007 Ev Nucci


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July 2, 2008

Mark Yusko on talent – the one percent

Ev: What makes somebody talented in your mind?

Pedigree takes many forms. Where did you study, where did you work, who did you work for, which might be one of the most important things. Who are your mentors? In fact there is a great line, look at the four people you spend the most time with, that’s who you will become. And those influences in our life have a dramatic influence on you and what you turn out to be.

People who have a strong a pedigree–it doesn’t necessarily mean going to an ivy league school–if you’re going into geology, hopefully you went to the Colorado School of Mines not Harvard, not that Harvard’s bad at geology, it’s just if you’re going to be a geologist you probably want to come out of the Colorado school of mines.

Process and philosophy. Lump those two together. Philosophy is not just an investment philosophy, but life philosophy is important; then the process of how you implement that philosophy is important.

Personality. There are characteristics of personality, I think are really important. One I talk about all the time is competitiveness. We like people to be competitive at something, I don’t really care what…debate, chess, bridge, poker, it could be a individual sport like tennis or a team sport like soccer. I look for conviction. People who don’t have a strong conviction about something are prone to inaction and prone to less good outcomes. Unless you have the courage of your conviction you’re going to get shaken out at the first sign of trouble.

Ambition is important, not all consuming, but ambitious people want to do good things in the world, whether in business, or in philanthropy, or in their family. They have ambitious goals and work hard.

Connections and some of that goes to pedigree, did you study with people who went onto to become important people, did you work for somebody who is now in a big position. Richard Rubin is a great example of that. He trained many guys on the street today. Now they have a mentor they can that has run the treasury and is a senior advisor to Citigroup. If that is your mentor you have access to things other people don’t.

One of my mentors is Julian Robertson and I tell the story that when I was talking to him one time a couple years ago and his phone rings and his secretary says you better answer it, you go next door and tell Putin that if he let’s Yusko go down the tubes there’s gone to be hell to pay. I don’t get that call. He was talking to the Kremlin. But I had the information now because I had the right mentor and relationship.

Something else that I think is critically important is what I call intellectual independence. Most people are very good at having a conclusion and then finding data to support their conclusion. Talented people search for source information and draw conclusions before they act. It also gives you great conviction if you came up with the idea as opposed to taking someone else’s idea and just accepting it at face value.

Raw intellectual horse power, intelligence is important, but not everybody I’ve met who’s in that top one percent is the most intelligent person in the room. Many of them are, but in some cases people are too smart by half. They don’t have any street smarts or savvy. So intelligence is not 1600 SATS. There is the raw intellectual horsepower intelligence, but street smarts and common sense is important.

Along with that is an openness to new ideas and a willingness to be collegial and trade ideas with other people. A lot of people are very secretive, and think that they have the only intellectual property that’s of value and I find I have very few original ideas.

Integrity, personal integrity is incredibly important to success. People who cheat at golf will cheat on you. If you’re playing golf with somebody and they use a little foot wedge to kick the ball out onto a good spot and tell you they got a four and don’t think anything of it, well, how about when you get to the end of the month and the numbers didn’t come in the way you wanted? Maybe you mark up that bond a little higher than the bid you actually you got. Cutting corners and not having personal integrity is recipe for disaster.

The most talented have a humility and humbleness that as smart as you are, they know maybe it’s not all them. They understand other people have a big impact. They understand the role of luck.

Respect for other people. Knowing the tinniest person in your organization may have the biggest idea.

Then the last one is if you are nice, people will be nice to you. I have had so many experiences in my life and career where I was nice to somebody just because and those people have been amazing to me. There is karma in the world.

Copyright 2007 Ev Nucci


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March 20, 2008

The one percent – Mark Yusko

Mark Yusko is one of the most inspirational people I’ve ever had the good fortune of knowing. Mark owns Morgan Creek Capital, a fund of funds (hedge funds). His charm, grace and style is simply refreshing.

I asked Mark what he looks for when he interviews hedge fund managers, what is important in talented people. He said, “respect for other people, knowing the tiniest person in your organization may have the biggest idea. I believe in Karma. Personal integrity is incredibly important to success, people who cheat at golf will cheat on you. You need to have balance in your life, you cannot be a workaholic.

Creative intelligence is borrowing an idea and creative brilliance is stealing an idea and taking someone else’s kernel of an idea and making it your own through research and synthesis.”


Mark inspired this book. At a breakfast in December, 2007 with Julian H. Robertson, Mark said, “there are ten thousand hedge fund managers, and only one hundred are any good.”

I asked Mark to describe a failure for me because it’s through failure or our perception of our failures that we learn the most about ourselves. It’s how we respond to failure that we learn how to succeed.

“My boss said to me ‘your trouble is your clock runs faster than other people’ and I thought that was kind of a compliment at the time. But what he was saying was that hey you have to understand that not everybody wants to run as fast as you do, not everybody wants to be challenged all the time, that you can rub people the wrong way. “


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March 10, 2008

The one percent – how they manage email, phone calls and respond to referrals

Lately I’ve been fortunate enough to work with a few billionaires. And what’s interesting is how they manage their professional lives. Their world is incestuous and referrals are golden. What’s interesting is how billionaires respond to phone calls, email, referrals. Billionaires are quicker to respond, are more generous in helping you and are generally more humble. Millionaires are slow to respond. It’s interesting how the two groups differ. You can see how the billionaire got to where he is…and the millionaire remains a millionaire. It is both interesting and fascinating to experience.

March 4, 2008

The Top One Percent – Qui Vuong

I wake up thinking one percent, go to bed thinking one percent, live breath and eat the one percent. Yesterday I interviewed a gentleman by the name of Qui Vuong. Qui came to the United States from Vietnam. By chance he boarded an airplane instead of his cousin. For five long years Qui didn’t know if his mother, father and two sisters were alive. Right after he boarded the plane in Vietnam, Saigon fell. Imagine what that was like for a thirteen year old boy. His Aunt and Uncle took him to Houston and raised him like he was their own son. I spent almost four hours interviewing Qui. It was probably one of the most fascinating four hours I’ve spent in a long time.

Qui’s story is simply inspirational. Qui went Princeton, then worked for Proctor & Gamble, then returned to Houston so he could be close to his family. What a warm and wonderful gentleman he is. He refused to give up. Qui is one of the founders of the Chartered Alternative Investment Analysts Association. Qui talked a lot about his mentors and said many of them referred to him as a “special situation”. I asked him what he meant by that. He said many people took him under their wings because they saw him as a “Vietnamese refugee” that needed help. What was interesting though, was his perspective. What was it? He sincerely appreciated others support and help along the way…and he gave them credit. He didn’t take the glory, he gave it to others. Generosity, appreciation and recognition.


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March 2, 2008

The Top One Percent in the world

How does the top one percent in the world differ from the other ninety-nine percent? One way is they focus on what they do best, but constantly reinvent themselves. Or better said are looking for the next project. What do I mean?

Yesterday I was meeting with a billionaire. He owns a real estate development company and was interested in building his equity company. We talked about John Thain and why Goldman people do so well in running other companies.

I explained “Goldman University” and 360 degree feedback. I’m not sure this billionaire is interested in 360 degree feedback, but his greatest challenge is finding and keeping talent. I told my husband he thanked me for my hustle. Here’s what I find interesting. How many people on Wall Street would actually thank me for that? My husband said maybe it was because so many people wouldn’t come out on a Saturday morning to meet him. Personally, I find that almost unfathomable. But then again, how many are working on a Sunday morning?

I think it’s my goals. Though I’m writing this book, the first question anyone would ask is, what’s your next project? I have two other books in the pipeline and a screenplay. I’m an author and a screenwriter.

Copyright 2007 Ev Nucci


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