Peter Grauer takes his age and accomplishments lightly. He will turn 70 in October but he doesn’t bat an eyelid when he says, “I know I look much younger than that.” As for his accomplishments, he credits it to the serendipitous meeting with Michael Bloomberg. Grauer never tires of repeating how he met ‘Mike’, now a close personal friend for nearly 27 years. His then six-year-old daughter wanted to learn horse-riding and for that he had driven down to a farm 50 miles out from Manhattan.
That is where Bloomberg’s daughters had also enrolled to learn riding. Serendipity aside the fact remains that Bloomberg wouldn’t have entrusted Grauer with his company if he were not sure about his ability to successfully shoulder that responsibility. Grauer has now been on the Bloomberg board for 19 years, served as chairman for 16 years and was also its CEO for 9 years. Grauer’s counsel is much sought after by private and public institutions but having successfully battled prostate cancer, the Prostate Cancer Foundation, on whose board he sits, is the one that is closest to his heart.
What is Bloomberg LP’s moat and how do you ensure that it stays forever or for a long time?
We have several moats. One is the nature of the community that we have developed and the way we interact with that community. If you look at our 325,000+ subscribers, the average tenure on the terminal is probably somewhere between 10 and 12 years. They need to do what they do every single day and part of that is because we have developed product offerings that our customers need. We have evolved those products as the markets have changed, as delivery mechanisms have changed.
For example, not only have we been very proactive in creating disaster recovery capabilities for customers, we also have been very aggressive in developing mobile applications or providing in depth functionality across asset classes. So, constant innovation, very high customer service through our analytics desk, the relationship our sales reps have with our customers, the tone that Mike (Bloomberg) and Tom (Secunda) set at the top in terms of customer service… all of these have contributed to creating moats.
Another thing: our being a private company is a huge competitive advantage because we can take a long term perspective and invest knowing that the first five or six years may generate negative rates of return. Let me give you a specific example… around 2002 there was a very strong competitive threat from a consortium of Wall Street broker-dealers with regard to a fixed income electronic trading platform. We were concerned that they would take that platform, add news, data and analytics and have a more competitive offering as compared to the Bloomberg terminal.
To counter it, we took one of our best people at that time and developed what today is the leading electronic fixed income trading platform in the financial markets. It took us about 8-10 years to get there but we got there. If we were a public company we probably wouldn’t have had that long term perspective about things. Having one shareholder (Mike Bloomberg) who owns 85% of the company makes the decision making process an awful lot easier. So I think that, too, contributes to our moat. But none of it takes away from the fact that we have to worry about all this stuff and that it is a highly competitive place out there. There are a lot of very strong players that would love to take some of our market share away that we have earned over the last 33 years.
Despite Bloomberg’s unique competencies, are you experiencing any pricing pressure and if that is the case, how do you deal with it?
Our business model is elegantly simple: we price our product at one price for everybody. Whether you subscribe to two terminals or you subscribe to thousands and thousands, which our larger customers do, everybody is subjected to the same pricing discipline. We raise our prices by a weighted global average inflation rate over a two-year time period and our customers are used to that. The last time we did that was in 2014 and of the total 40,000 or 50,000 mails sent, we got about ten emails questioning the price increase.
As for pricing pressure, it relates to lower priced offerings that are primarily focused on the local capital market. In some cases, that is not our target segment. Our market in India is investors who follow the local capital markets but are also very interested in what is going on in the capital markets outside India. Or it is the sales and trading people or portfolio managers in London who want to know what is going on with the public companies in India. So, it is a slightly different audience for us than it would be if we were solely a domestic data provider.
The other thing that to some degree protected us is that we provide all these other capabilities in the terminal. I described before our fixed income electronic trading platform and that is also true with our foreign exchange electronic trading platform or our equity order routing capability called EMSX. The ability to direct securities for execution in those markets to pools of liquidity can be done in the terminal at no incremental cost. If clients had used a third-party provider, they would end up paying a commission for that.
What we are interested in is that desktop real estate and therefore have created much broader functionalities in the Bloomberg terminal. We may on the surface appear to be more expensive but when you add all the additional capabilities in the terminal that value proposition is much greater than when you just look at the sticker price of the terminal.
Despite Bloomberg’s entrenched position, are there business risks that you most worry about?
The number one issue always is leadership and succession. To make sure that we have developed a bench of men and women who can lead the company going forward. Ensuring that people are developed properly, that they get geographic opportunities and they are given opportunities to succeed and fail and learn from the failures. Most people aren’t totally ready to take on additional responsibility but you have to give them an opportunity to do it. You have to monitor to make sure that they are doing what they are supposed to and if not, give them the remediation and support to succeed. So, leadership and succession is issue number one for me.
Issue number two is reputational risk. We operate on trust all the time. Since we started the company we host all of our customer applications, we have all of their data in our data centers. We write 6,000 to 8,000 stories a day around the world and making sure that we get that right because reputation is critically important to us.
The third thing that I worry about is the financial services industry, both the buy side and the sell side. As a result of the financial crisis and lower economic growth, banks and brokerage firms on the sell side and asset managers, hedge funds, corporations and government on the buy side, have gone through a dramatic reshaping of their business model. The kind of structural change that is going on in the markets is something that we need to be keenly engaged in and aware of. We have got to make sure that we anticipate this change and help our customers meet those challenges. The fourth thing that I worry about is cyber security as it is an important part of what we do. We are very humble in that environment because it is dramatically changing. It is a race without a finish line. You have got to constantly invest in new technologies and ensure that you understand the technological changes that are going on and the implications of those. We move more real-time financial information around the world than anybody else. We think we have a thoughtful approach to the problem but you never know.
Constructive paranoia seems built into the DNA at Bloomberg LP, how do you put it into practice?
It has been part of the company culture from day one. If you were to have much exposure to Mike or Tom or the other founders, their mentality pretty much is, “the glass is half empty, it is not half full.” It is just instilled into us as part of the Bloomberg culture that you are constantly looking over your shoulder and you are never satisfied. When we talk about a competitor who has developed a product, we never talk about equivalency; we always talk about doing better.
I think that has been part of the makeup of the company from its initial years. If you think about the accomplishments that we have had over the years, part of it is because constructive paranoia leads to a sense of humility about things and we try not to take ourselves too seriously about some of the successes that we have had. [To put things in perspective, in 1989 Bloomberg LP clocked about $85 million in revenues. It closed 2014 with $9 billion.]
So, how do you percolate it down the organisation?
I think we do it through open communication and transparency. We are a company of ideas. We want people to think about how can we do things differently, how can we continue to be disruptive going forward. I think it manifests itself in the fact that we try and eliminate bureaucracy and be more agile and work together in smaller teams and things like that. It is kind of there and a lot of it comes from Mike’s personality.
In hindsight, would you say meeting Michael Bloomberg was the biggest turning point in your career? What is it like working with him?
I started my career at Citibank in 1969. Obviously someone took a chance on me to give me that job as I knew nothing about the banking business. I went to Wall Street in 1980 to work for a firm called Donaldson Lufkin Jenrette as part of their private equity business. Then the next big move that took place in my career was me getting to know Mike Bloomberg in October 1989 because of our girls. In 1996, he asked me to go on his board of directors. When he decided to run for Mayor he asked me to become chairman. When he was elected Mayor he asked me to come in as chairman and CEO. It was a relationship deeply steeped in friendship but it was also a relationship built on trust.
There is nobody in the world like him, who has accomplished what he has in his career. Having a very successful career on Wall Street, getting fired from Salomon Brothers and then starting Bloomberg LP. I characterise us as having been a student of companies for the last 45 years. This is one of the greatest companies in the world and we owe a tremendous debt of gratitude to him. He led the company for the first 21 years and I led it for the last 13 years with lots of help. Now he is back, full of ideas and at 73 he hasn’t slowed down at all. It is a privilege to have him as a very close friend and colleague.
If you look at business history, very few companies have been able to transcend a shift led by technology. What qualities does one need to transition successfully?
The most important quality is courage, the conviction that change is required and that you have to make that change. There are lots of examples of people who weren’t prepared to do that, who I think became a little bit overconfident in the model that they had and didn’t see the change that was going on. So I think courage and knowing how to lead in an increasingly complex world is important. There aren’t a lot of people like that.
We have a guy called Justin Smith who runs our multimedia businesses and what he did at The Atlantic took a fair amount of courage. He sustained the print capability on the one hand but built a bunch of digital offerings to be able to create new revenue streams to offset the contraction in the classic print business. Obviously you have got to be innovative and you have got to be prepared to implement disruption in terms of one’s business model. But these are the kinds of things that when you go home at night, you look in the mirror and you say to yourself, “God, I don’t know if I can do this.” But you got to have the courage to be able to try and, hopefully, the resources that give you the latitude of time and capital to get those things done.
How has your own leadership philosophy evolved over the years?
Emotional intelligence, authenticity and humility are qualities that I identify with. I belong to the old school that believes a significant portion of leadership is natural. It is instinctive and you are born with it. You are given opportunities to allow it to surface by people taking chances on you. I think emotional intelligence plays a key part. People with high emotional intelligence have a greater propensity to listen because they have a quiet self-confidence in how they conduct themselves.
They have a much better understanding of the importance of listening to people, processing that information and providing thoughtful feedback. You may be pretty good academically but you have got to have the emotional intelligence to understand how to judge people, how to challenge people, how to get people to think differently and how to make difficult decisions about people.
As a leader, you also need to understand the consequences of power and only use it when you need to exercise those powers to make significant changes to the organisation. I could have won every single fight I went into at Bloomberg LP because of the authority I had as chairman and CEO but I focused on three things over the 12 year period. One was the big organisational change with people in 2005. The second was hiring my successor in 2008. The third was making sure that when Mike came back the relationship between our then CEO who got promoted in 2011 to succeed me as CEO and Mike would ultimately work out.
The last thing I would mention is that a leader needs to reflect. These are the things that I have thought a great deal about over the last 45 years. I have been very fortunate that people had confidence in me, in many instances before I think I deserved it. In the end it has worked out pretty well and I am fortunate enough to have had a terrific run.