Trading Places

When Goldman Sachs President John Thain became CEO of the New York Stock Exchange in 2004, the organization was still reeling from the scandal over former CEO Richard Grasso's $140 million pay package. Since then, Thain has worked to automate trading and engineered a merger with Euronext, a consortium of European exchanges. In the latest of his series of interviews as part of the NEWSWEEK-Kaplan M.B.A. program, NEWSWEEK Editor-in-Chief Richard M. Smith spoke with Thain about the challenges he's faced. Excerpts:

SMITH: When you took over the exchange, what did you do to repair its image?
THAIN: A number of things had happened at the exchange, and in the marketplace itself—Enron, WorldCom, etc. We had to be very clear that we were, in fact, changing the governance structure, that it would be independent of conflicts. We also had to be much more transparent. Then we really had to focus on the investors—what were their concerns, what were their needs. Listening to your customer is always a very important thing.

You took a large pay cut to take this job. Why?
When John Reed first talked to me about moving from Goldman to the exchange, my first reaction was "No, why would I do that?" I loved Goldman Sachs. I loved my job. I was getting paid pretty well. But over time, Reed convinced me that the New York Stock Exchange was such an important part of the world's financial system, and the problems there were such that I could really make a difference. He said: "Why don't you give something back to the system?" In the end, I decided to come to the exchange really to do that, and the compensation piece was not in any way relevant.

Does your training as an engineer make you lead differently?
I think engineers like to understand how things work, and when you understand how things work I think you're better able to lead. To lead with only a 100,000-foot understanding of the business is much more difficult—and, I think, much riskier. Having a real knowledge of the intricacies of the business allows you to be a better leader because you can make better choices.

Has the era of the charismatic, swashbuckling CEO passed?
I don't think you have to be uncharismatic, but I think that the idea that any one person can be so all-knowing and simply say, "I'm the CEO, I know the answer, simply do what I tell you"—I don't think that works in a business as complicated and as rapidly changing as ours. The need to listen to all the different constituents, and to really make sure you understand what their demands and concerns are, really requires a consensus-driven approach.

What was the lesson you needed to learn when you arrived at the exchange?
How to operate in a much more public environment. Goldman Sachs, even though it became a public company, was very much out of the press, out of the public limelight, whereas my job as the CEO of the New York Stock Exchange is a very public job. Every day there are 30-plus media outlets on the floor of the exchange, listening to what I say. Getting used to that degree of publicity, being careful about how one answers questions—that's a skill that takes some time to develop.

What was the most common mistake a young employee would make at Goldman Sachs?
Goldman was a very competitive, very dynamic and very driven environment, but it was also a place where teamwork was incredibly important. So one of the biggest mistakes that a young person could make was to confuse being externally competitive as opposed to internally competitive. Internally, you had to work as a team. The competitive spirit, the competitive force, had to be directed externally. If you didn't get along well with your peers, with your bosses, with your subordinates, no matter how brilliant you were, you would never be as successful as somebody who really was very driven, very smart, very entrepreneurial but could also work well as a team player.

Does Wall Street ' s focus on quarterly earnings occasionally get in the way of effective management?
I am one who believes there is too much focus on quarterly results. I think that companies should be run for the long-term best interests of the shareholders. At Goldman we didn't give quarterly guidance [to analysts]. When companies go public, I advise them not to give quarterly guidance. What should be important is the long-term performance of the company, not whether or not they miss their quarterly estimates by a penny or less. But it's difficult to stop giving guidance once you've started, and in certain industries it's hard because all your competitors give guidance.