It's my absolute pleasure to introduce our next conversation. Ken Griffin is founder and CEO of Citadel, one of the world's leading alternative asset managers. He's also the founder of Citadel Securities, one of the world's most prominent market makers. Citadel manages over 70 billion in assets and is considered one of the most profitable hedge funds. He will be in conversation with Ahmed, the Steven and Robert Denning Professor of Finance and Senior Associate Dean for Academic Affairs at the Stanford Graduate School of Business. Ahmed is also a senior fellow at the Hoover Institution and the Stanford Institute for Economic Policy Research. His research interests include financial intermediation and regulation, which make him a perfect couple for this conversation. So let me introduce Ahmed and Ken to the stage.
Good morning. Thank you, Ken, for doing this. Good morning, everyone. It's a pleasure to welcome everybody here. I heard the conversation from the green room and it was terrific. Thank you, Sarah, for starting us off. So Ken, I thought I'll set the context and then we can get going on the conversation which is going to be very pleasant. We are, I think, in an environment of fragmentation across markets, policy regimes, even the rules that govern capital allocation. And that naturally raises a question: when the system itself is shifting, markets are volatile, politics is polarized, institutions are under pressure, what's effective leadership and what does it look like? So again, you have built institutions at the center of global markets and also have been direct about your views on policy, competition, and responsibilities that come with influence. So what I thought is that we have a conversation about leadership in that context and, like you guessed, lure you in with a very simple question: when the environment itself is uncertain or I would say adversarial even, what matters most in leadership?
So when you're in, I mean, that's a really open-ended question. And the bottom line is that every business is constantly making decisions under uncertainty. The only question is how in your face is that moment of uncertainty. So right now, for example, it's very much front and center that every business is dealing with a number of new trends. Deglobalization, for example, is a profound shift in the commercial landscape from 20 years ago. But let's go back to like roughly 2004, 2005. How many retailers in the United States had a mobile marketing strategy? Not one. And yet 10 years later, if you didn't, you were probably fighting for your very existence. So in '04, sort of this very tranquil moment, the best of times, businesses were just in some sense naively believing that they were in a world of certainty when in fact we were right at the pinnacle of an incredibly important pivot, a revolution in how marketing and retail is done in America. So every business leader needs to just be constantly aware that irrespective of what's front and center, you are making decisions under uncertainty. You're going to have to make your best guesses as to where to take your business, and you're going to have to be flexible and willing to pivot as information unfolds in front of you.
I'm not sure it's all that deep. I think it's important. One of my colleagues said that he was my partner for years. We worked together for 30 years. And he said, 'Let me tell you what it was like to work with you every day. Go get into a roller coaster and go as fast as you can and then when you least expect it, you stop and change direction.' And what's happening is we're going as fast as we can in the direction in which we think we need to travel. And he goes, 'And there's many times you snap my neck when you would decide and rightfully so that we were going in the wrong direction.' But I think the important thing is that businesses that commit to a direction of travel and that keep an open mind are businesses that actually have a chance to succeed. Whereas many large businesses find themselves unable to commit at all and end up going nowhere. And I think that is actually how large businesses fail is they lose the ability to move in a direction. And great businesses do not suffer from some cost fallacy. You know, one of my partners worked at one of the largest global banks and he's phenomenal and we were talking once about the biggest difference between Citadel and where he was at. And he goes, 'Look, here's what I struggle with the most. There's no sunk cost here. Where I worked, everyone would sort of try to figure out who to blame for the mistake and how to like bury the mistake in a pile of paperwork. Here, it's just like, screwed that up, next.' And I think really successful businesses know when they need to change direction. And you only get there if you have an open and honest dialogue with one another about when you're going in the wrong direction. You know, this month we've underperformed some of our competitors in the marketplace and it's like dial in what did we do wrong over the last six weeks that caused us to underperform and don't sugarcoat it. Like it wasn't like we got beat by one competitor, we got beat by several competitors. What did we do wrong? How do we learn from that? How do we not repeat that mistake? How do we get better?
Okay. So that's very helpful. Let me try to make it more concrete for myself. So I want to understand where that instinct that you have comes from as a leader. So you know when many people see success they assume things. I think what's less visible especially in the kind of business you are is how did you develop that instinct because the feedback that's coming to you from the markets is noisy, information is incomplete, uncertain but the downside is real. So were there any early experiences that shaped your judgment as a leader where you developed that style?
Well, let me first open with: history is written by the winners. Okay? Like history is written by the winners. And so every single success story in business is biased towards the chapters in which they won. And those who failed are long since forgotten in the footnotes of history, if they even make it into a footnote. So I think it's very just important to take a step back and realize that every great success story there are countless chapters in that book of where things went off the rails. You know, people forget that Steve Jobs went back to Apple back in the mid-90s and they were down to having just weeks of cash on hand and he had to make some profoundly painful decisions to right Apple's trajectory which was a trajectory heading right to bankruptcy. And then people forget that Apple had a number of really major failures under Steve. The Newton handheld. I mean, who's even heard of it? All right, we got a few people in this room that are my age and they're like, 'Yeah, I remember that.' All right, but like people forget this. All right. So, number one is when you think about success stories in business, just remember that really good CEOs will also tell you about where they had very difficult times because you need to learn from both sides of the book. You need to learn from what works and you also need to have an appreciation of what doesn't work. And then what you need to understand is that great businesses are businesses that actually demonstrate resilience. They're able to face their darkest moments, keep those moments in perspective and then move forward again.
And can I ask, so obviously going from your individual style to building organizations requires what you just said that the whole organization needs to be in that mindset of resilience. Are there any episodes, like I know the 2008 episode for your firm was an interesting one. Did that shape in any way how you thought about the world going forward?
So interesting one would lose the narrative. It was a near-death experience. All right. It was, there was nothing interesting about it. I was in the elevator going to work and I literally on one day in the elevator going down from my apartment, I'm like I hope at the end of the day that we're still in business. And I must tell you that thought rarely crossed my mind in 35 years. But on that day it was very poignant that like it's not clear to me that I will be in this elevator coming home tonight and we will still be in business. Like the turbulence and chaos in the US financial system was unimaginable. And we lost a number of our major investment banks in just a few weeks. You know, Bear Stearns was acquired by JP Morgan in a weekend fire sale. Lehman Brothers actually just flat out failed. Merrill Lynch was one of the best sales ever by a corporation. Bank of America had to be basically bailed out on the back of that purchase. I mean, that's how bad Merrill Lynch was. And Goldman and Morgan Stanley will both have their sort of story of survival, but Morgan Stanley was saved by a large investment from the Japanese and Goldman Sachs was largely saved by a large investment from Berkshire Hathaway. And then the government generally supported the overall financial system at that point in time. So this was just an absolutely horrific moment in American finance. So that was really a dark moment for us back in '08 and the biggest takeaway for us was, you know, in essence the government put in place a paradigm. If you were a bank you had access to the Fed, you had access to a much broader safety net. If you were not a bank you were much more left on your own. And the key was, and this is going to sound very simple, don't pretend to be a bank unless you are a bank. And what people forget is that the large firms like us, like Goldman, like Lehman Brothers, we actually had many characteristics of a bank. We had access to the wholesale funding market. We could fund at pricing near or sub-LIBOR. You know, we had incredibly great access to credit. And what none of us appreciated was that in a period of crisis that access to credit would actually not just slow down or fall a bit, it would cease. It would end. And that's what really took down the American investment banks of 2008 was they lost the ability to fund the assets on their balance sheet. All their commercial paper would come due and nobody would buy new CP.
What I want to do from some of the things you said is to move to a topic which I think is pretty important at least in my mind and we'll see if the audience will agree. At some point I think a firm like yours post-2008, I would certainly say that you were not just a participant, you were a part of the broader infrastructure, broader system if you will and as a result you have a position or say on the rules of the game. Like many times it's happened and in the recent years we've seen policies on tariffs, immigration restrictions, industrial policy and broad swings in regulation on both sides of the political aisle, I would say. And the way I see it is that some of these measures may help some firms in the short run, but they distort competition over time. You've said for example recently that tariffs and immigration restrictions can be inflationary which is a position to take. You've also been critical when policies again on both sides start to look more like favoritism rather than leveling the playing field. So pro-business if you will. So how do you, when you're looking at things and you're in the trenches, how do you distinguish what is genuinely pro-market and what is merely pro-business? Because politicians seem to get that wrong all the time.
Well, what's interesting is in a world of crony capitalism, many of you who are in this room on merit will actually be the losers. That's just how it works. Like crony capitalism is a world where you curry favoritism through frankly often very inappropriate or distasteful ways to favor your commercial interests. And American business works best for the American people when it is subject to the forces of competition. We just go back a few minutes ago. We underperformed our competitors in the last six weeks. What do we need to do better? That's the ethos of a competitive market. That's an ethos of continuous improvement. That's an ethos of having to fight to do better. And businesses that are subject to that pressure deliver better goods and services to their consumers. Crony capitalism replaces the world of merit and earned success with a world of who is better connected to those who are in power at any point in time. And often leads to a very dark world where state capitalism is really the world of truly like an oligarch-like society. And one of the things that has made America so great is we are so far away from that. You know, look at the largest companies in America. Think about how many of these businesses were started by entrepreneurs in the last 30 years. You know, Jeff Bezos at Amazon, the story of Nvidia, what's happened to AMD, what's happening at Facebook. I mean, it's just unbelievable how much of America's commercial success, Google, has been written by people who are first-generation entrepreneurs who came to this country often with nothing and who have built these incredibly successful businesses that have transformed our lives for the better. It's the antithesis of a world of crony capitalism. Apple would be a great narrative in that. How much do you begrudge Apple for their success when you use their products unfortunately too many hours a day? Right? And when you end up in a world of crony capitalism, you end up in inferior products, lower innovation, lower standards of living, and rightful reasons for the population to be angry because they see the benefits of business occurring to those who don't earn those benefits by any stretch of the imagination. I may look at how successful Elon Musk is and go, 'Wow, like that's unbelievable.' But when I use Starlink, I go and I appreciate his willingness to just keep stepping up and just keep innovating.
