Ackman Has Old Data and Incomplete Info in War on ADP, CEO Says

we're going to visit with Carlos Rodriguez. He is the president and the chief chief executive of a d P and just by way of quick background, in August, Bill Ackman's Pershing Square Capital announced that it had taken an eight point three percent steak and since then it has been in a well proxy battle with a DP. In here to tell us more is Carlos Rodrigez. Carlos, thank you very much for being here. Appreciate it. Thank you

for having me. All Right, I'm gonna I'm just gonna start you off by um asking you, based on your experience in the job and who you've talked to and your analysis, do you really believe that Bill Ackman wants to make a DP a better company or does he just want to make a lot of money and go away? I think it's probably little bit of both. Uh. There's no question that the business model that he has is really about making a lot of money and eventually going away.

But I think he has some uh done a lot of research on the company and certainly has some ideas about how to make the company better. So it's probably a little bit of both. So do you think that he's largely right in his criticisms of a DP. No. I think that, you know, some of his information is outdated. UM. I think as he's done his research, he's probably spoken to some folks that have a perspective of a DP

that's probably outdated. He um. As you mentioned that, the first time we heard from Bill was in August, so he hasn't had the benefit of really having a dialogue with the company to understand the things we've been working on. So let's go over what his main criticisms are. He's been saying that a DP has a quote buy not build model, whereas he would like to see a more innovative spirit. Um. He has some other complaints too, among them that board members don't have a big steak in

the company like himself. He's saying, I have a better sense of the interest of shareholders. What's your sense, what's your what's your counter to those points? Well, starting with the ownership question, all of our directors have been deferring the cash comp portion of their fees for many years, and some of them have millions of dollars worth of ADP stocks. So it's just not I think it's an accurate depiction of our board, and there's the stake that

they have in an ADP. In terms of the innovation point, um, you know, we've we've really been all about innovation over the last six years, and I think that's one of those items where I think we've had an opportunity to have dialogue and communicate with Bill. He probably would have a different perspective because we've been investing in cloud technology over the last six years, We've moved of our clients the new cloud solutions. So I think it's really, I

think again outdated information. It's it's just not it's not accurate. What about margins, He's noted that the felt that margins were too low in the business. What's That's an interesting question because we we meet with investors obviously on a regular basis, as you can imagine, and the absolute level of our margins really isn't one of the items that we've heard a lot about up until Bill uh contacted us UM. So we obviously have margin improvement initiative under way.

We've actually grown our margins by five basis points over the last uh five years during my tenure, and we have a plan that we've publicly put out there to increase the margins by another five basis points over the next three years. So I think we're focused on margin as Bill is. I think it's really about pace and I think the risk reward ratio of how fast you move. So there have been a lot of public jobs back

and forth. I'm wondering on the private side, have you sat down with Bill Ackman explained your point of view and what was that like if so, we have We've had a think professional and cordial conversations. Bill also came, myself and our chairman with Bill, and we've also had a meeting with the full board of directors where Bill came and Uh gave his his the information that he had, the research that he had done, and then his his

opinions about where the company should go. So I think the company has been open to dialogue and I think it's been professional and cordial. So he went on television shortly after Bill Ackman announced his steak and called him a used car salesman in a spoiled brat. Your your rhetoric is a lot less inflammatory today. Is there a reason for that? Um? You know, probably time heals all wounds, as they say, So, I think, uh, you know, Bill is a significant shareholder, and we obviously are open to

listening to all shareholders. We do disagree obviously with his his perspective on the timing of how fast we should be improving our margins, and we also disagree with the board disagrees with the candidates that he's proposed as as nominees. But you know, we're trying to folk, it's really facts. Now, what's been your main objection to the people he's nominated in his idea? Well, it's not myself, it's really the board,

in our nominating governance committee, who interviewed the candidates. And you know, we believe that we have a strong and independent board. We've added, for example, four new members over the last three years, including three with strong technology experience. One of them is Bill Ready, who's the CEO of PayPal. So We've added some really great talent around technology in order to really help us push this innovation movement that

we have in the company. And so we think we have a strong independent board that is very capable as a good mixture of tenure and history with the company, but a lot of fresh thinking as well. So I think the committee, the nominee and governance committee just came to the conclusion that there really wasn't any additive value from the three directors that builds proposing. Can you describe what it was like and where you were when you first learned that Pershing Square had an eight point three

percent stake in your company. Actually, I do remember that quite well, and I probably will remember it for a

long time. I was in my car arriving home about to leave on a on a trip, UH and I was actually leaving a board meeting, and I looked at my my cell phone rang I looked at it, and it said Bill Ackman, And so I entered the phone and Bill and I had again a professional and cordial conversation where he said that he wanted to replace five directors of the company and replace me, and that the company just needed to move faster, and that he wasn't

that he had an eight percent stake. He didn't clarify at the time that he had only a two percent stake and the rest was in stock options, which we you know, figured out later down the down the road. But um, you know, obviously immediately called our chairman after that, and then we had a board meeting to discuss the situation and then to talk about next steps. I love the idea of cordially discussing, you know, saying to somebody I'd like to see removed, and cordially saying, well, I

disagree with you. I imagine it was quite a quite a conversation. Well, it was, I have to admit of a surreal moment. But you know it's my job to be I think, unemotional, and I think I serve at the pleasure of the board and also at the pleasure of the shareholder. Carlos Rodriguez, thank you so much for joining us. Carlos Rodriguez as President and chief executive officer

of a d P, which is based in Roseland, New Jersey. ADP, of course, is very well known for the employment reports that they put out in a regular basis that are used as a gauge of the employment market in the United States. Well, Chinese President j Ping has warned of severe challenges while laying out a roadmap to turn China into a leading global power by twenty fifty. He was speaking at the twice a Decade Party gathering, and uh, we're here to tell us a little bit more about

it and maybe some analysis is Bill Rhodes. Bill Rhodes is the author of Banker to the World, Leadership Lessons from the front Lines of Global Finance, and of course he is also the president and chief executive of William Rhodes Global Advisors. Bill Rhodes, thank you very much for spending time with us. Jumping spoke about the Chinese dream. Does the Chinese dream include a nuclear armed North Korea? Well,

I think that, uh. As you remember, Pim, I've been saying on your show for the last more than a year that the most important political event of this year was not going to be the elections in Europe, but the nineteenth Party Congress, which, as you mentioned, already started.

And this sort of crowns Shi Jin Ping as the leader at least for the next five years, if not longer, because um, if he decides to keep his chief lieutenant once she's shun on the Standing Committee of the Pull Up Burero, and this will be announced at the end of the conference. First of all, how many members will be on the Standing Committee of the Pull Up Buro? Will it be UH seven as you have now, will

reduce it to five? And very important whether he'll keep one she's shot because once she's shot is A sixty nine and the informal day to retire among seniors in China. And so if he keeps him on, this man opens the door for U Shijun Pain not only to do this five years UH to UH two thousand twenty two, but opens his door to do another five years, which would be something that has not happened since Dong Joe Pang and Mouse Tom. So it's very critical in this area.

I also feel, and as you know, I did an up ed on it came out two days ago, that China is the only one who can basically halt what's going on in UH in Korea with Kim Jong oon and this continuous development of missile technology and matching it

with nuclear capability UH nuclear warheads. And the reason the Chinese can do that is they supply almost all the oil and gas, and if they cut that off UH, and they've taken they've said they're going to cut off a little bit, but they need to cut off basically all of it, because then the Chinese, the Chinese will have the ability to stop the Korean armed forces right in their truck. And I think that's what needs to

be done. UH. And hopefully with his visit UH that President Trump is going to make UH in the next few weeks to UH China, and he will be the most important person to have arrived in China after the Party Congress, which is by the way, held every five years. So this gives these two the opportunity to try and sort out North Korea because the sanctions so far approved UH at the United Nations won't do it. Bill Um,

You're an unbelievably expert negotiator. You have vast experience over decades of negotiating debt deals and other deals across the world. And I'm wondering, can we talk about what we've gleaned from the beginnings anyway of the nineteen National Congress of the Communist Party of China, of what China wants its role to be as a global negotiator and a global force much akin to the US. Well, I think in Asia they want to replace the United States as the

leading military political entity. Uh, that's the immediate goal. And as you know, since he took off as five years ago, sheijun Ping has substantially upgraded and continues to upgrade the Chinese military, whether it be the army, the navy, where they particularly upgraded a big time, where the air force, and so he wants to be the dominant power there. And so this is going to be a challenge to the United States. Now what the global uh let's say, aspects of this will be is not are not clear.

But I think the real challenge for shijun Ping within China is to handle and to tackle some of the economic and financial problems. I mean, the debt has been growing way out of line, the debt to GDP. It's over and uh if he continues at the same page next year, it will go over. Well, this isn't sustainable over time, and so uh what it what it does is caused distortions in the economy. I mean, the continuing funding of the of the state owned enterprises. Uh, you know,

to a tremendous degree. Uh is not really healthy because a lot of these zombie companies UH in the areas of coal, steel, shipbuilding, and the former premier of China had started to UH Juranji some twenty years ago had started the process of trying to weed out some of the zombie zombie companies. But this is sort of stopped. And what Shi Jinping wants to do is to sort of merge the state owned enterprises with some private enterprise to make them stronger, but not really to downsize, and

which is necessary. Then you have a bubble in the property and real estate market which needs to be looked after. UH. And at the same time you have a similar situation with the growing debt of the municipalities. Added to all of this, you have a problem with shadow banking, which is now from of total GDP of China, and it's very lightly regulated, if at all. And so all of these things, if they're not dealt with over the next couple of years, could really cause a problem economically and

financially in China. And UH and I think slow growth, which as you know, is so important only to China but the world. Well, but Bill, I'm wondering if now that this important meeting this twice a decade meeting is close to being finished. Will China be more aggressive in curbing some of that leverage now that there doesn't have to be sort of a dance up to the up to the meeting. Well, that is my hope and the hope of a lot of China followers is that that

that will happen uh starting next year. Now they've taken some steps by putting in a reformer to run the Banking Commission, the cbr C, and they will have to replace uh The governor of the Central Bank of China, the People's Bank of China, who is first rate um is Shoa Chuan, because he's already three or four years over his retirement and they'll have to replace him the end of this year and next year. And the the institution that is most respected within China and worldwide is

the People's Bank of China. So there are a lot of things that that Shi Jimping has to do. One of the other rumors that's going around and will certainly know that in the next few days, is whether Uh Hi Jumping will keep his premier, who is Likau Chung, And normally the division there is the head of state.

Uh looks after the political side has a military under him, but the economic side is driven by the premier, like the famous Juan Ji who was so strong twenty years ago and got China into w t O and changed the whole economy of the world basically not only of China. And there are rumors that that one Shi Shan who I mentioned earlier, who's so close to President Shi Jimping, might be in that position. We'll know within four or

five days. Also as part of this very positive aspect that s. Jimping is putting forward the China Dream, et cetera, they will be announcing uh the third quarter results of their GDP on Thursday, and they'll probably show, if not seven percent, very close to seven percent, So that'll you know, that'll get them off on a on a in a very positive way. But they have to start making these reforms starting next year without a doubt. Bill Rhodes, thank

you so much for joining us. As always. Bill Rhodes, President and chief executive officer of William R. Rhodes Global Advisors, also banker for decades, including a long time at City Group. Let's talk about Facebook. There was a story on the Bloomberg today that was fascinating looking at how Facebook and Google helped anti refugee campaigns in swing states ahead of

the election in the US last year. Vernon Silver, Projects and Investigations reporter for Bloomberg News authored this piece also here in the studio Shia Oviday Vernon, can you just outline what you found. Basically, what happened is this group which is against h immigration refugees, with all these ads that they wanted to put on the Internet in advance of the elections, targeted key swing states like Nevada and

North Carolina. And they didn't just buy the ads. You know, when you think about Russian interference, you think about people who are unknown buying these ads. They went directly to the ad sales people at these companies and work with them.

In some cases, the companies, the big two were helping tailor the message for them and even in the case of Facebook in one case using these videos which were you know, making fun of what happens if the Islamic State comes to Paris type of thing, and using them to test their products. What's been the reaction from the companies. You know, they sell ads, that's that's their jobs. It's just money to them. Well, no part of it is they can't be sensors either. And it's really it's a

fine it's a fine line. But why you can refuse to accept someone's advertise? Where do you draw the line? Well, I want to bring Shira in here, Shira, I'm wondering what the implications are for Facebook as these new facts emerged that not only did they allow some of these political operatives to advertise, but they helped them hone their message and experimented with the best most attractive social placing. I mean, what's the implication from a regulatory standpoint as

well as a business one. Well, look, I think we've clearly seen this year, particularly since the the U. S Election and the presidential election and the fall, that Facebook and Google especially are now under a microscope about everything to do with their business and particularly the power of those two companies to literally influence two billion or more

people around the world. Right, And they pitch themselves as we can change people's minds or influence people to buy soda and soft drinks and soda and you know, for trucks, and it turns out they may also be vehicles to you know, turn people against immigrant groups or to help sway elections. In places like Germany. Well, Vernon, I just want to come back to this idea of Okay, where do you draw the line. I mean, you can't advertise cigarettes, right,

you can't advertise cigarettes on television. You've got billboards telling people not to smoke. There are a variety of advertisements and a variety of topics that are not permitted in certain venues. What is so difficult If these companies are so smart and they have all this great PhD talent and all these technical wizards, what's so difficult about saying we're going to draw the line of things that are obviously not true and things that are really just designed

to incite people rather than to inform them. Those restrictions you just mentioned go back to the point that was just made about regulations. These are things that came from the outside, and that's the risk to them. Well, okay, so political advertising, and this is the issue, right, because at what point do you say, well, this is inciting people versus this is trying to make a point from

a political party, Shia. What would happen to say, Facebook's ad sales if there was a regulation saying that they could not help craft or place prominently political ads. We I don't think we really know the answer to that, because Facebook does not disclose of the size of their revenue from political advertisements or kind of political related advertisements. UM.

I think the reality is the scale of Facebook. There is no single advertiser, or even no single category that is a you know, seriously material piece of their business. I think Facebook set around the election that political advertising was not a top ten ad category for them. UM. I am also not sure that we're going to see that kind of regulation in the US around political advertising

on Facebook or other Internet properties. Everything is a little bit sort of amorphous outrage against Facebook at the moment, but I don't know that I've seen a credible kind of legislative proposal. Yeah. I mean, the interesting thing there is, you know that it's not in the financials but talking to the people on the other end who are placing the ads. In the case of the German far right party, we were talking millions, we were talking hundreds of thousands.

This was very small money for a big company like Facebook, and yet this was a campaign that helped a far right party come to power for the first time since the Second World War in Germany. Although you could argue that it is exactly because these small fry operations can have such a huge reach on Facebook that Facebook has attracted the same kind of advertising, the bulk of the advertising that it has. So yes, it's small potatoes in and of itself, but the platform and the opportunity there

is really what has attracted so many people. Wonderful story. Thank you very much. Verdon Silver, Projects and investigations reporter for Bloomberg and of course you can follow him on Twitter at v T Silver and our thanks also to Shira Oviday. You can follow Shira, our technology gad flyg columnist at Shira Oviday. This is Bloomberg, all right. We want to get smarter when it comes to what's going on in Wall Street. So we have Hugh Son. He is our finance reporter for Bloomberg News, and you can

follow Hugh on Twitter at Hugh Underscore. San s o n Alright, Hugh, you are sort of debuting a three part series that the Bloomberg has put together about automation on Wall Street, and I gotta say I like the title of this one. The upbeat bankers who privately worry about gutting their staff, do they also worry about gutting themselves. I mean, you know, you let them in, and computers they have a way of expanding, don't they. I think, um, I think top management believes that they will be the

last to go. Somebody's gonna have to turn off the lights at the end of the captain. Huh yeah, yeah, I mean you still need decision makers at the very top. I think. All right, So tell us about this this uh series and what you got at in in the

first of the of the three parts stores. Well, we and everybody else really have been writing about this in piece meal for quite a while now, and I thought, um, we needed to do something a bit more definitive and and so the real thrust of this piece is a data visualization project that shows across asset class, across the job, across Wall Street, hedge funds, banks, everywhere, just the efforts that are being done in machine learning and AI, in

different things like a robotic process automation, which is, you know, a simpler form of AI. And the real takeaway for us was that there is no part of the empire that a finance that is completely untouched by this and it's just the beginning. Well, he one thing that struck me is the adoption of computers and artificial intelligence has been largely builled as a way to remove the mundane tasks from humans, giving them more leeway to really be creative.

This story really paints a different picture. Can you talk about that well? So that I think the story we're talking about is um it comes from conversations we've had with with executives you say, you know, on background, not not for you can't name me. This is not something that I want taped. But I think this is really gonna this is really going to kill a lot of jobs.

And this is on my mind. And so when you think about organizations with hundreds of thousands of people, not every is gonna be not everybody is doing something on a daily basis that is creative that requires um, you know, uh, real abstract thought and creativity. And so what happens when their jobs get automated away? Right? And this is this

is gonna have a real human impact. I think of, for example, the introduction of a t M S right automated telemachines and what that did to the banking industry. I recognize that at the time, the headlines were that there would become there would be no tellers in any bank. Well, that didn't really come to pass, although it has changed.

I'm wondering, is there the possibility that it will not happen in this straight line path at many in the industry seat It most certainly won't happen in a straight lighting path, and most certainly won't happen tomorrow or even in three years. Um, but it is happening right now. And and a t M S. That's a good example. That's something that's added. If you have a t M S,

it's another channel that you get money. Uh. You know, just because you have um, you know, uh an app banking app on your phone, doesn't mean that you still don't need the branch. Um. What we're talking about is a little different. We're talking about um uh computer programs that essentially automate the tests of what people do today. I'll give an example. What one example is loan underwriting. Person does loan underwriting looks at the potential borrower and

sees if they're a good credit risk. Takes hours and hours and even days. Can a computer do that faster, cheaper and better? Uh? I think so? So are there any estimates by anyone of how much wall Street head count could shrink over the next decade or two due to the adoption of artificial intelligence. Another you know, um, it's a opining about AI is the growth industry. I mean there's a ton of consultants, uh, you know who put out where people can go for their new employment. Right,

that's that's that's somewhere. Yeah, that's somewhere you can um make a name. And and I mean in general, you hear you hear people say thirty percent in five years, and thirty does not seem high when you when you think about the numbers of people who are in the maiden back office doing things which are centrally moving numbers from one screen to another and making sure that the trains run on time. Staff cuts across Wall Street over the next five years is what some think is a

conservative estimate. Is a number that has come up ballpark time and again from different from people from the companion to you know, to uh, you know John crying at Deutsche to to consultants. Yes they get that from a computer. Huson. Thank you so much for joining us, and we look forward to reading the next iterations of this series. An important uh, an important series to really read and consider

about Wall Street going forward. Houston is a finance reporter for Bloomberg, and you can find both the stories and it's in their graphics, which are really quite compelling. Their interactive and show which areas of finance are most at risk of getting shar on the human side due to computers. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm

on Twitter at pim Fox. I'm on Twitter at Lisa abramowits one before the podcast. You can always catch us worldwide on Bloomberg Radio