Who: David S. Pottruck
Title: President and CEO, Charles Schwab Corp.
Where: San Francisco, California
Challenge: Remain realistically optimistic while transforming Schwab into a trusted investment house, in the face of war and bear markets.
David S. Pottruck has learned to check the look on his face before he steps into an elevator at Schwab headquarters in San Francisco. As Schwab’s president and CEO, he knows that his employees will be either comforted or concerned by his expression as he guides Schwab through what he sees as the company’s most “monumental restructuring” yet: transforming Schwab from a discount brokerage that has prided itself on not giving advice into a full-service brokerage like Merrill Lynch and Fidelity. Ten years ago, Schwab was a scrappy outsider offering a do-it-yourself way into the market. When the bull market hit, Schwab was in the right place: Its annual revenue skyrocketed from just over $1 billion in the early 1990s to $6 billion by 2000, with a stock price in the mid-$30s. Three years later, Schwab’s stock is at about $7; in 2002, its revenue was back to prebubble status, at $4 billion. Pottruck’s assignment: Prove to investors, Wall Street, and his own people that Schwab can find a way through these tough times.
How do you keep up morale in the midst of a down market?
Keeping up your own morale is the first task. You can get immersed in the quarterly numbers and think, “I’m going to miss my numbers.” But you have to keep the big picture in focus: the health of our franchise, the strength of our brand, our competitive position, and our ability to grow and change. For morale, I’ve got to be visible. I can’t be holed up in my office, or people will assume the worst. I tell my reports that they have to be out there, but that they also have to be appropriately upbeat, not unrealistic.
You’ve been through ups and downs. What do you tell your employees about today?
The structural change that is going on in our business is staggering. This isn’t just a “down” — it’s a historic decline. We have young people who have never seen anything like this before. They are truly challenged emotionally. You can’t say everything is fine. You have to show a path to a new reality — something that is tangible and believable.
So what is the “new reality” for Schwab?
This is the issue: Who will emerge as the customer’s trusted adviser? Ten years ago, people came to Schwab because they didn’t want or didn’t need advice. Now they want help. But they don’t trust financial advisers, because Wall Street’s dirty little secret about research is out. We built our reputation as the largest discount brokerage that didn’t give advice. But our customers don’t want discount or half-assed advice. They want insightful, high-quality advice. To that end, we’ve bought U.S. Trust and Chicago Analytics. We’ve hired hundreds of people from Wall Street to answer questions and offer advice in our call center.
With Charles Schwab himself moving up to chairman and you becoming sole CEO, what will change?
Nothing — at least not for employees. We’ve spent five years as co-CEOs, and we’ve worked together for 20 years. The co-CEO arrangement was rare, but it worked. Our relationship has evolved seamlessly.
What gives you a sense of satisfaction in your work?
We’ve managed through a 36% downsizing, a 25% drop in revenue, and an even greater drop in our stock price without losing our moral compass or our culture.