John Schlifske on the Legacy of Northwestern Mutual (Podcast)

hundred billion dollars in investable client assets. Uh. This really is a fascinating conversation, not just about the insurance industry, but about how the entire financial services industry has changed over time, how it's become more integrated, more holistic. How the concept of, you know, the insurance salesman out hawking policies is so outdated. Uh. John is really super knowledgeable

about a variety of things within the industry. Northwestern has been very aggressive in not only their own internal green initiatives, but they're diversity initiatives. You tend to think of a company like them as a large, staid insurance company that might be a little behind the times. They are nothing of the sort. They seem to be fairly cutting edge relative to the typical financial services firm. I was fascinated

by the conversation. I find Schlisky to be really a fascinating executive, and I think you will also, so, with no further ado, my interview with Northwestern Mutual's chairman and CEO, John Schlifsky. This is Mesters in Business with very Renaults on Bluebird Radio. My extra special guest this week is John Schlivsky. He is the chairman and CEO of insurance giant Northwestern Mutual. The firm ranks number one oh two on the Fortune five hundred. They have over thirty one

billion dollars in annual revenue. Northwestern has three hundred and nine billion dollars in assets and two trillion dollars in active life insurance coverage. John Schlifsky, Welcome to Bloomberg. Well, thanks, Verry. I'm glad to be here, appreciate it. So let's start out talking about some of your beginnings. I read one of your first jobs was scraping paint off of trucks.

To tell us about that, well, my, uh, yeah, My father owned a very small trucking company in Milwaukee, and so when I was thirteen I had to start working there and I basically did all the jobs none of the professional truck drivers wanted to do, including things like cleaning bathrooms and cleaning trucks and scraping paint off of

things and stuff like that. So it was I think it was my dad's way of uh making me want to go to college because I was you know, it was a lot of gritty and grimy work and uh um in a family business environment. So it was a great experience. Uh And and it certainly taught me the value of an education, I'll tell you that. So, speaking of education, you go to college, you get an m b A. And it looks like pretty much right out of school, you started at Northwestern Mutual and eight seven

was Was that your first job right out of school? No, my first job was with MetLife doing similar things. Uh. So I graduated from business school and went to MetLife for four years, both in Chicago and in New York and uh and then I got recruited to go to Northwestern Mutual, which is in my hometown of Milwaukee. So it seemed like a kind of a dream come true for me, and so I started. Yes. So then I did go to Northwestern much and that was thirty four

years ago. I can't believe it. UM, back in seven, that's right, Did you always want a career in financial services? Was? Was that the plan? What I really wanted to do was be in the investment world. I had. I had had a couple of summer jobs in banks, and I

saw their asset management uh stuff. And when I was in business school at Kellogg at Northwestern, Warren Buffett was speaking in Chicago, and you know, it was for young and investment people, and he said, if you really wanted a great investment care you should work for a life insurance company because they have great processes. They're typically buy and hold investors, very analytical in nature, uh, exposure to the the entire balance sheet, from bonds through equities, all

that kind of stuff. And so I you know, I think that made a huge impact on me. And so as I was interviewing at business schools UM, I became increasingly interested in the investment side of financial services. So U looked at some investment banks, looked at money management

firms on Wall Street and things like that. And I think, given my experience, and I was relatively young when I got that business school, I think the life insurance jobs were just perfect for me because it was a place where I could, uh, you know, build my skills and start out really at the bottom as a junior analyst. And uh um, and I really loved managing money. I just I love the game. I love the you know, the game in the sense of trying to figure stuff

out that other people hadn't. And so I was I think I was always attracted to that sort of analytical framework, and that's why I went to MetLife and then ultimately Northwestern Mutual. So I read an interesting quote from you, and I want to get your feedback on this quote. What had the biggest impact was the recession of nineteen seventy three and seventy four. I watched my dad be

worried about at that point about even meeting payroll. I saw the volatility of being a small business owner, and that drew me to want to work for a big company for security reasons. Explain the thinking that well, uh yes, So, as I mentioned, my dad had the small trucking company maybe at its peak had had thirty employees. Uh and I and I was fourteen and fifteen during the recession of seventy three and seventy four, and I didn't really

understand it the way I do now. But I do remember him coming home and you know, hearing him talk to my mom about making payroll for his employees and having to draw in his own savings accounts a couple of times to feed the check account at work. And I remember one week where he said he made twenty two cents. Uh, you know, that was what's left over after he paid all the employees. And and I it just scared me, I think. And I just saw that that pressure and that volatility, and uh uh. And then I,

as I mentioned, I had a summer. I worked in a mail room at a bank one summer. So imagine you go from this grimy, gritty trucking company where you never know where the next paychecks coming from, to a bank where every he's clean and showered and well dressed. And I think that had a tremendous impact on me. And then you had the security of it, which is the bank seemed to be much less impervious to the economic volatility, at least to someone working in the mail

room at the time. I'm sure they had their challenges. Uh. And so I just uh, I just never wanted to work for a small company and I never wanted to to run my own business. I always wanted to work in a big company. And I think that that notion of security was a key element in it makes a lot of sense. So from MetLife you end up at Northwestern Mutual, where you start working your way up the ladder.

Tell us a little bit about your career path. Well, as I said, I started out in what we call our private capital area, so that was doing private placements of so privately placed debt, privately placed equity, leveraged buyout. The eighties where the leveraged buy out you know, Glory days, and Northwestern Mutual was was a huge participant in it.

So it was it was a fun experience because we were we were looking at so many different companies, so many different industries, so many different kinds of capital structures, and I was learning so much um So we had that growth in the company and then I was I

was growing as a as a professional. And one of the things I've always appreciated about Northwestern Mutual, and I think it's still true to this day, it was a true meritocracy, and and by that I mean that I always thought the people who got promoted, including me obviously Uh, we're being rewarded for what we did, what we knew, how we were growing. And I never felt it was there was a club. I never thought connections were the way to the top. I always thought it was doing

the right thing and being rewarded for it. So I think, you know, over my over, you know, it's your growing up in your twenties and thirties and forties. Every now and then head hunters would call. But I always wanted to stay at Northwestern Mutual really for two reasons. One, I love the culture, I love the what the company stood for. And then the second, as I mentioned, I always felt it was a true meritocracy where you were

rewarded for what you did. And I think, ultimately, if you had told me I'd be still here, I don't think I would have believed you. But when you start stringing together year after year of this feeling about good about the company, it's culture and its mission, and good about your career and your bosses and the way you're treated, um, I just think that growth was amazing. And so here I am twenty at whatever it is, thirty four years later, one feeling really privileged to have been able to make

most of my career at this great company. Sound sounds really interesting. And you've been CEO for is it what seven eight years already? It's even you can believe it. Yeah, that's a shocking that's a shocking number. So, speaking of how quickly time goes by, Northwestern Mutual has a hundred and fifty year old history. How does that affect how you manage the firm? What does that legacy mean to you? Well, I I would start up with the notion that it's

uh both an honor and a responsibility. So it's sort of like take your favorite sports team, the Packers, the Yankees, you know, whatever team has this unbelievable legacy when when you're running the place, you can't lose sight of not just what a great job it is, but the huge responsibility that goes along with it, and this notion that we've been around for generations, we've taken care of people for generations, and that we have to do that for years and years to come. I say, I always like

to tell the story. So we're a mutual company. That means we're owned by our policy owners, were not a stock company, and we don't really have an end date. There's no there's no notion that at some point this company will get sold to somebody else or that uh there, you know, we need to find a different ownership structure or anything like that. We we are in business uh for past generations, are current customers, and generations yet to come, even people who aren't even born yet. Uh. There's a

sense of responsibility to take can care of that. And UM, I think that's one of the things I love about this job that as the CEO, you can think in three different time directions. We obviously have to deliver and I call them near now in far so we have to deliver near. We have to we have to do what's required today to deliver uh or excuse me, that's the now, to deliver value to our policy owners today.

But we also have to be effective and relevant both in the near term, let's say two to four years out and in the far years out. We're selling products today in which people will own them for sixty, seventy eighty years, and so that that notion of working over decades, creating relevance over decades, creating economic value over decades, evolving over decades is really one of the sort of legacies that goes with running a company that's over a hundred

and sixty years old. And if you look at this company, we started as a life insurance company that we're now number one in the in terms of market share in the country. And you mentioned we have over two trillion of life insurance in force. But we've evolved. We now sell a variety of risk products including disability, income, annuities, long term care. But we also are a major wealth

management player. We have over two hundred close to twounter million excuse me billion dollars of assets under management for our wealth management clients. We're growing, uh swiftly in that business. We're integrating insurance and investments at our at the client level to create better outcomes. And those are all proof points I think around how this company has evolved and

how is the leader. You feel this tremendous responsibility to steward the company for the next generation of employees, policy owners, and people who sell our products, which we call our field. They all have a long term stake in the in the value of this enterprise. So John, let's talk a little bit about change. You were discussing how the company has adapted over the past few decades. How have the

economics of life insurance changed over time. Well, the economics have u changed in a material way, and it's it's really UH tied to what's going on in the marketplace. In the marketplace, UM, the fundamentals that create value for our policy owners haven't changed. It's how well the investment portfolio performs, It's what's your mortality experience, It's how persistent of the policies, how long do the policy owners keep their policies, and then ultimately can you manage the expenses

of the business and be a low cost providers. So those things haven't changed in their the core to creating value for our policy owners who happened to be our customers at the same time. But what's really been I would say the most dramatic in the last let's say fifteen years or so is the role of interest rates UM. They obviously have a huge impact on pricing. When interest rates go down, the the cost of life insurance goes up, not necessarily the premium per se, but for permanent life insurance.

A huge component of the value is the cash value that builds over time, and when UH interest rates are low, that cash value builds at a much slower rate. And so that's what I mean when I say it becomes more costly. So with rates coming down in the dramatic way they have really over the last fifteen years, that's had a very important, UH sort of headwind on the

value of life insurance. And so if you think about it this way, UM, you know, policies issued in in the mid nineties had interest rates in the eight percent range UH, and now we're in a period where interest rates are down around three pc. So that that's a huge difference in terms of the value that's created in these policies over time. The good news is from Northwestern Mutual's perspective that we we really have recognized this and

have stayed ahead of the curve. I remember going to Japan in the late UM two thousand's, right around two thousand and eight two thousand nine, and I visited with a number of Japanese life insurance companies at the time, and they, of course have been going through this same sort of decline in interest rates for the past couple

of decades in Japan and UH. I think that the two takeaways I had there were one, it never stops, and you have to be prepared for a very long period of low interest rates and you have to get your financial house in order, which we've done. And the second is you have to continue to evolve. You have to continue to show value to your policy owners because what may have been the key value, which is higher interest rates, goes away. And so I'm really proud of

the way Northwestern Mutual has navigated this period. But ultimately, uh, it's low rates that have been the biggest headwind on the company, and they've had the single biggest impact on the economics of our industry. Huh. Really interesting you mentioned mortality as another after. There are two issues I have to ask about. One is the impact of people living longer. In general, we we've tend to see lifespans extent, but at the same time, you know, we've had over half

a million COVID related deaths. How do those two factors play into the economics of the insurance business? So, uh, you know, the increased longevity of Americans over the last century has been a huge positive for the life insurance industry, and mortality continues to improve, although not at the same pace it did let's say, in the twenties and thirties. But in general, Americans tend to be living longer, living healthier lives, and that has a huge benefit to the

value of their policies obviously. And uh, and that's one of the and one of the reasons Northwestern Mutual stands out is that our mortality experience is actually better than the the industry average. We underwrite very well, and so all of that mortality improvement really is returned to our customers, our policy owners in the form of dividends. We paid out over six point two billion dollars in dividends in twenty and and that's a huge proofpoint on the the

economic value that we create. Immortality is a huge component of it. COVID, of course, is a tragedy for this country. UM and UH, you know, it's obviously many many, many hundreds of thousands of deaths due to COVID. What we found for our our company is that the average age of our COVID claims has been around one years old, and the average duration of those policies is over forty years. So what's what that's telling us is it, by a large at least for Northwestern Mutual's policy owner base, Uh,

the COVID impact has been relatively negligible. These are obviously much older people who have had these policies and forced for a long period of time. And if you look at sort of the difference, but you know, just in terms of death rates with COVID and who's dying versus let's say the Spanish flew back in the areas, it tends to negatively impact much older people rather than much

younger people. And so that's that's muted the mortality cost, let's say, at the mortality expense of COVID as it relates to our policy owner base, and so as as we've told our board, uh, you know, we're in business to pay claims. We pay death claims because people need that their families needed, their loved ones needed, and we're proud to pay out our COVID claims. But at the end of the day, uh, it's been something that hasn't been nearly as bad from a financial perspective as many

people thought a year ago today. So you had mentioned other forms of insurance like disability and long term care. I know a number of other carriers have run into some problems with that. What seems to be the difficulties with those products is it is it they're just harder to ice or did they simply underwrite the wrong group of people. There's no doubt that some products in the

insurance world are harder than to price than others. Uh. You know, if you think about insurance in general, you've got a group of people paying premiums upfront uh and then collectively they're sharing in the risk of loss. Um. And when it comes to long term care, there's a number of assumptions that were really um I think miss price. From an industry perspective, I'm glad to say Northwestern Mutual

didn't fall into that trap. Um. But without getting too esoteric, the single biggest mistake that many companies made with pricing long term care was what's called laps rate. And so this is the percent of the policies which laps in which people stopped paying premiums on. And many long term care products were basically laps supported pricing. In other words, they overestimated how many people would pay premiums for a while and then let the product laps before any benefits

were ever paid on it. And what the industry found out is that long term care is in fact a product that once people have, they don't want to give up because they know how near and dear it is to their financial security. And so, yes, the industry had some rather significant UM mistakes when it comes to pricing that product. I'm proud to say that, UH Northwestern Mutual has been sort of much more UM conservative with our

pricing we have. We don't do lap supported pricing in the long term care market, and as a result, we've had much better experience with our products. I do think long term care is an example of a product that is uh, what's the way to say it. It's it's people need that product. It's really really important for the uh, let's call it the average American to think about, um, how they take care of their long term expenses post retirement.

And I always use the example people have no problem ensuring their home even in retirement after the mortgages paid, because they can't imagine losing a physical asset to a fire or something like that. And yet the odds of making a claim on long term care and much higher than the odds of your house burning down in retirement. And yet people don't assume that that risk is something they should insure against. And so long term care insurance

is a nest. I think it's a necessary product. I'm proud to see the way the industry has been evolving to find new ways to deliver long term care protection to our policy owners, including Northwestern Mutual increasing now long term care insurance and the risks of it are being embedded in life insurance products so that you you basically have a combination of both the mortality risk insurance as

well as a long term care risk insurance. And I think that's really important because at the end of the day, one of the biggest concerns people have is running out of money in retirement, and long term care is one of those events that can completely throw your financial plans for a loop and and create you know, unfore unfoecasted expenses, especially around things like Alzheimer's, memory issues and so on.

And so for our industry to uh begin to come out with these hybrid products rather than just stand alone products that can create sort of these outcomes that people need is something that I think the entire industry should

be be very proud of. The Other factor about these combo products that's interesting is it's they're less likely to be mispriced the way standalone products are because the combination of your premiums over long term with the accumulation of cash values and a traditional permanent policy more than offset some of the risk that goes with long term care.

And so I think you're going to see long term care insurance continue to be at the forefront of what people need for financial security and uh, but just not in a standalone chassis so to speak. You mentioned where under ensured when it comes to products like long term care and what else are we as a nation under in short against what risks are out there? I would say that most Americans, and I'm generalizing, but I you know, I think this is generally true, are are underinsured when

it comes to both in additional long term care. They're under insure when it comes to both life insurance and to disability insurance. UM. And we find that when our reps sit down with clients and go through a rigorous planning process, especially people who have loved ones, that they need to take care of the notion. Uh. They often have a notion that I've got a group d I policy or group life insurance policy and that takes care

of me. And yet when they see what could happen if they would become disabled, especially in their twenties or thirties or forties with you know, twenty or thirty years of earnings, uh potential out the door or worse, a death um they find they're very much underinsured. You know, the problem we have as a as a industry is that everybody needs what we have, but nobody understands how

much they need. And it's it's a it is typically all three of the products we're talking about, life, insurance, disability, income and long term care. Our products that are bought are not bought but sold. And by that I mean people don't wake up in the morning for the most part try to figure out how much of any of those they need and go out and buy it the way you get up and say I want to buy a car, I want to buy a refrigerator, I want

to buy a vacation for my family. And so it is important that financial advisors understand these products that they can show the value of them to their clients. And typically when that's done, especially not in a product sale kind of way, but as part of a comprehensive plan, we're we're always pleased to see that people, for the most part, do want to buy more because most people do want to take care of their loved ones and

plan for these unexpected events. And this is why, as I mentioned earlier, this ocean of integrating insurance and investments together is a is a we think a much better way to create outcomes for our clients that are valuable, rather than just engaging in sort of one off products sales. So let's talk a little bit about what makes life

insurance somewhat unique in the world of financial services. It seems to be the only one that hasn't been disrupted by technology, as so many other industries, especially finance, has been. Why is that, Well, I think there's a short answer and a long answer. The main reason, sort of in the short run, why life insurance you haven't seen the disruption in life insurance that you've seen in other financial services companies, I think is because it's a very capital

intensive business. And so for companies you know, either startup fintech startups or even established players like Amazon or whatever, to get into it, it's it's a very capital intensive business. It requires a ton of money from a capital perspective, and because rates are low right now, the return on that capital is much I think less attractive to many uh disruptors. Let's call it that then maybe other places they could go right now. So that's the short answer.

I don't think that's um a reason not to be worried about disruption, and I'll talk about that in a minute. But I think there's um a lot of disruption coming our way. But I think in the long run, we really have been positively changed by technology, and I think

COVID has accelerated that change in a huge way. And I'd like to say we're not in anymmore, We're in And that's sort of a glib way of talking about how the acceleration in our industry because of COVID has really taken a decade of change and compacted it into one year. Where you see the most disruption in the short run around our industry is around the client experience as it relates to purchasing our product. Companies are are simplifying the process of becoming a ensured by in terms

of in the way you buy insurance. They're they're simplifying the application process, they're simplifying the underwriting process. They're doing it all sort of digitally with with no human interaction, and they're basically making it easier and easier for clients to who see the value of our product to buy the product. And so that's where you're seeing the disruption

in the short run. And on the same side, on the wealth management side, you're seeing these robo advisors who are trying to sort of simplify many of the core principles of investing, diversification, dollar cost averaging, tax planning, all those kind of things. And ultimately, uh so I would argue that we are seeing disruption creep in our industry, both on the risk side, the insurance side, as well as on the wealth management side. Uh And by the way,

I think that's a good thing for our industry. It's taking longer because, as I said, it's a capital intensive business. But but there's nothing about life insurance that would make me think that we're somehow, um uh immune from the kind of disruption we've seen in other parts of the financial services industry. And so the companies that are going to survive are the companies that are leaning into this disruption, that are UM experimenting around the customer experience um and

so on. Ultimately, though, life insurance is a product that is really tied to two things, foregoing of money now and pooling those risks to protect everyone over time, that that that that core essence of the product is not going away, that stands the test of time. It's the only way you can really protect yourselves against yourself as an individual against catastrophic losses. And by that I mean

risk pooling. And so in the long run, uh, I see the disruption in our industry more around the customer experience and the way customer way companies engage with customers, and less around sort of the basic mechanics of the product, which is as I mentioned, risk pooling, mortality, expenses, and persistency. So, so let's talk a little bit about those UM employees. Given the circumstances and how everybody has been working from home and remote, how challenging has it been to find

and train new advisors? What what's it like recruiting under a lockdown? Uh, well, it's been a lot harder, I will say that. UM. At the end of the day, I think though, the fact that we were prepared for this pandemic has has helped us be successful. UM. We didn't see the pandemic coming, don't get me wrong, but we we were well on our way to creating a digital experience both for our customers and for the people

who sell our product, our advisors. And so when we went to a quarantine situation and then obviously the lockdown, we were able not only to service our customers and sell our products to our customers solely through digital channels,

but we're also able to recruit people. In fact, we had a record year of recruiting in people join us as advisors UM And what I think is really noticeable about those recruiting about that recruiting class, it's more diverse than ever, more women, more people of color, and it really represents, I think a continuation around this notion that

this is a great, noble profession. At the end of the day, people who work for Northwestern Mutual and others in our industry are really helping people become financially secure. We know that most the average American doesn't know where they're going from a financial perspective. They don't know how to get there. They leave they have they have cluttered, sort of centered less financial lives, and they ultimately need

someone to bring that all together. And so this notion of being able to attract exceptional talent to this business, uh is not as hard as I thought it was. Going to be in a virtual world because the two things this notion that we have the digital tools, and because there's demand for what we do. We are not recruiting people to a dying industry were recruiting. We're recruiting people to an industry that really has a really bright future because of this notion that most Americans have to

provide their financial security to themselves. Think about my father's generation had a pension plan, the equity value in his house and so security and that's really all he needed in retirement to be financially secure. But it's much more complicated today and and people are on their own. They're not getting sort of those corporate UH defined benefit plans of you know from the days of old, and so this there is strong demand for what we do, and I think when you add all that up, UH, it

creates an ability for us to recruit into it. And then you add to this notion what we called the abundance mentality, which is that people UH support each other. People in our system they help each other. Our veteran advisors work with young advisors, they mentor them, they coach them, they do joint work with them, and all of that I think has put together for us a very robust year in terms of growth, even in the midst of this notion that it's not a face to face company anymore.

So we're a growing company. We grow UH in single digits every year. We're never going to be a double digit growth company given our size and our our history. But the fact that we could continue to grow in such a strong way in twenty I think it's a proofpoint on the notion that there is a demand for what we do really really interesting. You mentioned it was a record year of recruitment, and you were successful in recruiting women and people of color. Lots of firms in

finance have found that to be very challenging. What is Northwestern Mutual doing make UH their recruiting drive so successful when it comes to increasing diversity? Well, I think it's Uh. We're we're on about an eight to ten year journey in this UM regard. And by that, I mean we started about eight to ten years ago, and and we really decided at the time that it wasn't just going to be a one kind of year and done program.

And and so the first let's say five years or so, all we focused on was the culture in our offices. We knew that we had a male dominated, white, male dominated workplace culture, not that there's anything wrong with that, but it wasn't as inclusive as it should be, and we needed to change the culture of those offices so that women and people of color felt just as comfortable in them as as a you know, a twenty five

year old white guy. And so that was the beginning of this journey, which is, let's look at those aspects of our culture that needed to change so that it became more inclusive, more welcoming. You know. My favorite example is one of the one of our network office leaders used to have a contest for for new employees and if you won the contest, you've got a tuxedo. Well, the problem is women don't want a tuxedo, right, so

that was never an incentive for them. It's a little point, but it shows you all the nuances that we had to do around culture to create this welcoming environment for

anybody who wants to be in it. Then we spent the next five or six years really focusing on this notion of meeting people where they are and so you don't you don't recruit the same way necessarily for a white person at a big ten university, as you might uh a person of color at a historically black college, or a woman or who might be a career changer

or all those kind of things. And so we really focused on meeting people where they were recruiting people who were in environments UH that um that they didn't like that they could see we had a better one. But ultimately, I think what happens and I think this is uh, this may sound a little bit like motherhood and apple Pie, but I think it's true. At the core of what we do is we help people become more financially secured.

That is our mission, and that is an attractive proposition, regardless of your race or your gender or anything like that. And so ultimately, the more we can demonstrate to people that there's a home for you and that people want what you do, I think it's really um it's been one of the hallmarks of why we've been so successful from a diversity perspective and recruiting. It's because this is not a it is not a white male only mission. It's a mission that anybody uh can can look at.

And if you look at let's say Black America, that is traditionally underserved when it comes to financial security. There's a huge opportunity for other African American and Blacks to come into this career and and make inroads into that um sort of let's say, neglected part of our economy. Me and so, I think it's really it's a it is an abundance mentality, and it's one in which we've

started to make some notable successes. Were far from perfect on this the journeys now we're close to being over, but I really feel like we've started down the right path and we've got some proofpoints that it's working right now. So that's really interesting. How does that apply to the c suite and senior executives? A lot of big firms have been successful in recruiting people to the upper echelons of of the organization, but they've been less successful in

retaining that talent. Yeah, we're very proud of our record. Day. I always start with our board, my board. So we're a Fortune one company, and only of our board is white male. That means six of our board is diverse, either in terms of gender, ethnicity, race, or or some combination of the three. And so we we start, we walk the talk right from the beginning, right at the top of our organization. The other thing I would say is that we tend to be a company that likes

to develop talent internally. UM. Now we have some senior people who were recruited from the outside world, but by and large, UH we think the way to create a more diverse and inclusive company is not just from recruiting UH people to it, but from growing homegrown talent. All of my senior team, we all have a personal goal that that we hold ourselves accountable to. It affects our annual incentive plant payouts and our long term incentive plant payouts,

and it's around diversity. UH. We we have to be moving people up in this organization. We want to see more people of color at management levels and up. We hold ourselves accountable for that. Every UM open job, when we look at a slate of people, has to have at least one diverse candidate on it. When we're considering UH filling those jobs we want to promote from within.

The same thing is true if we've recruit from the outside for a job, that slate has to have at least one person and hopefully more that our represent diverse candidates. So we walk the talk from the very beginning from a recruiting and promotion perspective, and then we have fairly

elaborate what I would call support mechanisms. By the way, they're not perfect, that they're getting better, but so that people of color and women in our organization feel they have the same mentorship that maybe I had as a white male back in the eighties. And so I think, uh, And as as we've talked about on this podcast, I've

been here for thirty four years. And when I look at our our level, our management ranks, and I look at the women and the people of color in it, you know, I'm very proud to say a disproportioned share that is homegrown talent. And uh. And I'm hoping they see the same opportunities I did, the same mission that I have, the same mission that we have going forward. Uh And and so you know, I do think we

can we can hold on that talent. But I will say the other thing is that when someone recruits away one of our black employees or or let's say a woman senior woman, I take great pride in that because what it says to me is that we're developing talent that other people value and are hiring away from us. And just like we lose white males to the recruiting process, sometimes when we lose people of color and women, I do that as a proofpoint that we are growing talent

that other people value. So I think that's that's just this whole ecosystem is from a diversity perspective. Is you. It's not just one thing. It has to permeate your entire culture. It has to permeate your entire way of doing things. And as that happens, the roots take place. There's roots everywhere, and you're not really dependent on one or two people staying in order to hit some sort of metric. So so let's talk a little bit about, uh,

the financial services world. One of the big themes has been the move away from the traditional wirehouses and towards more independent channels. How has that impacted your investment business if at all? You know, I wouldn't. I would say we probably had a handful of our career advisors go to independent channels. And the fact the matter is is that if a career advisor leaves Northwestern Mutual, it's almost

it's almost inevitable that they go the independent route. But ultimately, our retention rate right now is about I think around which means the vast majority of our veteran advisors are

staying with Northwestern Mutual year after year. I think, I think there's there's two things that we're doing to create sort of that stickiness, because we never you know, you never want to compete on, uh, anything that's a commodity, and so from our perspective, uh, I think our our sort of value proposition to our our veteran advisors is what's keeping them there. And it all starts with sort of our what we call our unrivaled holistic approach to clients.

So it's the it's sort of the merger of a trusted advisor, a robust lining process with proprietary planning software, the integration of insurance and investments at the client level, which is somewhat unique in our industry, all backed up by a rich digital platform and omni channel service. So those five things do set us apart from most of the independent channels. They can't bring all of that sort of skill to bear, um, you know, to to a client.

The second thing we have is obviously we have arguably the best products in the industry when it comes to our insurance products, are our long term value in our permanent life insurance product the second to none. We're a low cost producer in the industry. So you you combine those two things, and we we think that there's there's a home for advisors that creates something for them that they can't get anywhere else. And that's ultimately how we

compete in the marketplace. And it's just creating a proprietary system, if you will, that ultimately works with clients. And we think we can demonstrate better outcomes over the long term with our clients, better outcomes from an investment perspective, and better outcomes from a risk perspective, and certainly when you integrate them, better outcomes. And so I think at the at the end of the day, that's what's causing this strong retention in our in our career advisors, is because

the independent channel can offer everything that we do. So life insurance salespeople have gotten a bad rap um in popular culture. Is that is that deserved or unfair? And and what do you do to try and reduce that? I think it's totally unfair. I think I think the bad rap is because nobody wants to buy life insurance right It's it's the ultimate self sacrifice. It's giving up

money today. Uh you know as a policy owner that I'll never see it will go to my loved one someday when I die, hopefully many many, many, many many years from now. But ultimately there's life insurance is a self sacrificing instrument that nobody really wants to deal with. And and you layer on that, nobody wants to talk about their own mortality. And so I think that's why the rap is unfair. I don't think it's because of

the product itself. Whether you're talking about Northwestern Mutual or almost any of our competitors, the persistency in their product lines is substantial. People keep life insurance for a very very very long time, and the reason they do it's because it has a positive impact on their lives. Whether it's at Northwestern Mutual or at any of the other major carriers, those products that we're selling ultimately have value

that people see decades from now. And so I think, and by the way, I don't think you can be truly financially secure without life insurance. It has um It

benefits you throughout your life cycle. As a young adult, when you're taking care of your family as your near retirement in terms of the optionality it gives you, and then ultimately at the end of your life with a legacy either for charity or for your loved ones, and so this so I think it is a bad rap, but I think it's it's one that the industry has always dealt with, and we're proud to talk about it because we know that when clients by our products, they

keep them. And I think that's a much better proofpoint than sort of this rap about life insurance salesman that see that that continues to go around and around and around. Interesting. So, so you mentioned um, managing risk over the long long haul. You're in the business as CEO of managing risks for the company. What keeps you up at night? Well, um, you know, I think the biggest thing that keeps me up at night is some of the stuff from the

external environment. If if you look at our business model per se. Obviously we're still in the midst of a transformation, so we've got to execute well. But the nuts and

bolts of our operation do not make me nervous. In fact, you know, one of the things we like to talk about is last February, when when COVID was on the horizon and everybody was freaking out, we were very, very a calm about it because we had done all the scenario planning UH for both a pandemic and a stock market crash with low interest rates well in advance of last February in March. It's not, by the way, it's not because we knew that was coming this this past year.

It's because that's what we do to make sure that we're always in operations for decades to come, and so I don't really lose sleep over the nuts and bolts of our operation. Where I get nervous is about UM A lot of the things going on. From a federal government perspective. I think we're in the midst of one of the biggest experiments we've ever seen in terms of

government spending UH and modern monetary theory. I don't think we actually know how this experiment is going to end, and I think that's something that causes me to get paused and to be all, you know, another reason why UH we value financial strength so much. By the way, we're a triple A company, one of only two triple A companies in America that has a stable outlook and that financial strength is uh is what gives me comfort

in in this sort of thing. The other thing I would say that causes me to lose sleep a little bit is this notion of operating in a virtual world. Northwestern mutuals culture and I hope you've heard this as I've talked, and our mission is is is steeped in all of our employees, and yet we've hired thousands of people in who have never said spend a day in

the office seeing that culture firsthand. And so this virtual world that we're in I think has uh eaten away a little bit at that cultural piggy bank that we have. And I can't wait to get back everybody back on campus and back in the office is and back to work so that we can rebuild that culture over time. I'm a little bit worried about that right now, and that's one of the things that we're losing a little

bit of sleep over. But fortunately, I think with the vaccinations and everything, I think we're closer and closer to the end of this. And then ultimately I think low rates are uh you know, continue to be UH problem for us. We you know, we we UH were built to last. It's not going to affect our company long term. But persistent low rates are very is a very sort of slow pressure on life insurance companies, and so we have to be uber vigilant about expenses. We have to

be uber vigilant about where we place our bets. We have to be uber vigilant about execution because we don't have a margin of error when rates are so low, UH to make mistakes and waste money or or go down the wrong thing. So you know, those are the things that keep me up at night. And then of course the government. You never know where regulation is going to go, where corporate taxes are going to go. Those are wild cards that we can't control. We're lucky in

that our industry is generally a bipartisan issue. We work with both sides of the aisle, and so when there's a new administration, we've got to build new relationships with the administration. But generally speaking, UH, our relationships in UH Congress, and you know, both in the House and the Senate are strong, but you never know what's going to happen there, and that's a wild card. I think that almost any business has to worry about. So generally speaking, I feel

good about where we are. I'm not losing sleep at night. Being the strongest company in the industry helps. But you've you've just got to be uber vigilant about all these things that are going on, because you just can't make mistakes when rates are as low as they are. What about social unrest as a risk factor During last summer, during the Black Lives Matter protests, you were pretty vocal

on social media. Tell us what motivated your voice and how it was received when within the company and within the industry. Yeah, so I was particularly moved this summer by some of that. And the reason I was moved is, as I said, we're very proud of our record around

diversity inclusion. But after the George Floyd killing and some of the social unrested followed, I made a point to call about twenty or twenty five of our black and African American leaders throughout our company, both in our home office in Milwaukee, but also in many of our network offices. And I think that the biggest sort of impact I

had was this notion of hope being constantly deferred. And it's it's this notion and not just at Northwestern Mutual, but from a societal perspective, and so this notion of as a black professional in this country, you hope things are better, you hope you're getting to a point of full equality and things like that, and yet those those hopes get deferred because of some of what we what we saw, and so those conversations, combined with what we saw going on around the country, really had an impact

on me in a in a way that I honestly didn't think that they would, And so I knew that there was a lot of work to do. What what I'm proud of in terms of the way Northwestern Mutual Approach did is that we didn't just the issue press really says, and we didn't just donate money to this cause or that cause. Those are easy things. I'm not saying they're bad things, but they're easy. But what I'm really proud of is the hard work that we did.

So we farmed, we farmed the task force. At I chair, we call it sustained action for racial equality and and the I think the two key words in that are sustained action. We decided not to just do something that sort of met the summer unrest head on, but something that we could be proud of five, ten, fifteen years from now. And we have a strategic roadmap. We're investing

in our communities, were investing in our culture. We're investing in financial literacy for African Americans and blacks, and we're investing in the professional development of Blacks and African Americans

not just at our company, but in our communities. And I think that kind of work is what I'm proud of because ultimately, um and I tell this story, you know, in sort of a fast way, but you can approach diversity inclusion with your left brain or your right brain if you're let's say your left brains the analytical side. America is becoming more diverse. Okay. The notion that you can be a thriving, relevant company just catering to white

Americans is crazy from just a purely objective perspective. So regardless of your feelings on this, there's a strong business case to be made, uh for diversity inclusion. But from the right, the right side of your brain, the more empathetic and emotional side, as I say, it's the right thing to do. We have a mission to make people more financially secure. That mission doesn't include labels like white

or black or Hispanic, or male or female. And so we we this, this notion of doing the right thing for people who feel like their hope has been deferred too long fits right into the mission of this company. And there's no way we can't be just as good as that at that as we are as it comes to wealth management or risk products. And so, uh, this is a skill that we're gonna build. It's a skill that Northwestern Mutual is going to be world class at

and something that I'm proud that started. It's too bad it had to start because of a killing and social unrest, but maybe that's one of the bright spots in this that ultimately it's going to lead to something that's much bigger and better than anything that was going on before or really really interesting. Um. A couple of years ago, you guys built a brand new headquarters. G it's about five years ago. UM, I know there was an element of sustainability in that new um h Q tell us

about Northwestern Mutuals sustainability efforts. Well, uh, look at me. You can't be a hundred and sixty plus years old

and not care about the environment. Okay, I mean it's it's this we want to be around for another hundred and sixty years, and our sort of ecological sensitivities predate climate change and predate all the current things that are going on, because we all utimately want to conserve things, and we want to conserve things because that's what great companies do, and we don't want to be seen as wasting any resource, especially natural resources. So the building is

a proof point around I think two things. One is the ability to create a building that can be green, that can that can create a wonderful work environment, but at the same time be at the forefront of all the efforts around energy conservation, UM and so on and that. And this building is and I can get into details around the windows and the cooling and all that stuff, but ultimately it is a very beautiful sustainable structure that has a great work environment as as part of it.

But the other thing that's interesting, and this isn't right to your question, but it ties into your previous question, is when we built that building, we committed to the city that we would have a large portion of the work done by minority contractors. And that's another form of sustainability that doesn't necessarily tie right to the um, to our climate or our ecological resources. But by using minority contractors on a you know, a half billion dollar building,

we were able to create sustainability for them. They were they were building skills, they were building financial resources, they were building a resume of pedigree around this kind of really important work. And so I think the sustainability of that building isn't just from a from an ecological perspective, but also from what we did as it relates to

minority contractors and their ability now to go forward. And as you've seen other construction in Milwaukee develop our new fights or form where the Bucks play, other major office buildings, those UH construction projects are now learning from what we did and employing the same both sustainability issues and the same minority contractor issues, and it's just you can see the ripple effects of that, and it's it's why I'm very,

very proud of that building. Now. Our employees will tell you they love it because it's great work environment, but I'm proud of it not just because of that, but because it's sort of the um the catalyst it became for all the things that we're talking about today. So the last big question I have is what are the looming large opportunities that you see when you look out ten or twenty years for both Northwestern Mutual and the financial services industry. Well, I think the I think this

is a growth industry. It's just it's just amazing, you know. To repeat what I said, most people have fractured centator list lives from a financial perspective. They have too many things. They don't know how to pull it together. They're on their own. They're pioneers in the sense that there's no uh way, you know, agreed upon way to do it. They don't know where they're going financially, they don't know

how to get there. They need someone to help them. Uh. And and it's it's unbelievable the demand that's out there now. It's latent demand. And by that I mean people don't necessarily know exactly how to get what they want. You know. Henry Ford had that famous uh saying, if I have people what they wanted, they would have said faster horses because they didn't see the view of the value of a car. And I think our industry faces that a little bit. People want financial security, they want to make

sense of their financial lives. They want someone to pull it all together for them and make sense of it, but they don't necessarily see the way to do that is through a trusted advisor, planning and the integration of risk and investment. So that's our job. Our job is to show people the way to get the financial security.

But but people are underinsured, people don't know how to say for retirement, people don't know how to take care of themselves financially, and uh it that that is the financial literacy in this country is I would say below average for where it should and could be. And so I think the opportunity for our company and for others like us is absolutely um unbounded. I mean, I really believe we're a growth industry. Now, We're gonna grow at single digits. As I said, we're not going to be

the year over year thing. Because this is hard work. You've got to engage clients one at a time. You've got to meet with them and do the planning, the rigorous planning that they need and show them the way forward. But I as I see more and more companies shift away from sort of this product oriented cell where I just want to sell a product to move on to forming these lifetime relationships with clients and get them to have the outcomes they want, not the products they want,

but the outcomes they want. I think our industry is going to continue to shine and uh so, I I am actually quite optimistic about our future. I'm sixty two years old. We have a mandatory retirement policy here at sixty five, so I've got three years left with this company, and I feel melancholy about that because I think our brightest days are ahead of us. I just think there's so much opportunity in this country to help people become

more financially secure, and it's it's very exciting. And then when you overlay how we're using technology to improve the customer experience, to make it more, to make it frictionless, more seamless, better for our lillions um, I think I think that this is is a is a bright future and so as this company does both perform and transform at the same time, I think we are just having that one of the brightest futures that we've ever had

as a company. And I'm really proud that we can deliver performance in the here and now, but at the same time build out this customer experience platform that's going to ensure relevance for years and years and years to come. So so here's an unanticipated question and a little bit of a curveball. I didn't realize Northwestern Mutual had a mandatory your retirement age. Have you even begun thinking about what you're gonna do in retirement or maybe that's the

wrong word post Northwestern Mutual. Well, I haven't really started thinking about it, to be honest with you. I've still got a lot to do here and I'm really excited about what i want to do, and it's a full time job. Um. You know, in my heart, I think i'd like to teach after Northwestern Mutual. Um, but I haven't put much thought into it beyond that. But some sort of graduate business school environment where I could talk about all that I've learned and share it with people

would be really fulfilling. And I think I get much more sort of joy out of that than a than a second gig somewhere in corporate America anything like that. So uh, But I, as I said, I've got plenty of time. I mean, Joe Biden and I are going to end our terms at about the same time. I'm sure he's not thinking about retirement, and neither of my I I've got a lot to do here. We've got a great team, and I really want to focus on

delivering in the here and now. Great answer, Let's jump to our favorite questions that we ask all of our guests, starting with what are you streaming these days? Tell us what's keeping you entertained during this work from home era either Netflix or Amazon Time or whatever podcast or audio you might be listening to. What's keeping you busy these days? Well, I would say that from a streaming perspective, except for The Crown, my wife and I don't do much of

that stuff. I when I am winding down, I'm much more about reading books than I am about streaming. But I will say we got sort of addicted to the series The Crown and love it. My mother's English. I went to English. I went to England every summer to visit my grandmother. So I'm a little bit of an anglophile, and that's that series really resonated with me. But to be honest with you, I'm much more interested in reading books when I have some free time. I think that

quiet really appeals to me. And so uh um, that's about. That's about it. From a streaming perspective. Well, we'll get to books in a moment. Let's talk about your mentors who helped to shape your career. UM, I've been UH, I've been blessed with UM a lot of mentors. You know. I think that probably, UM, there's two Rather than name names, I would say two things really, UH I value in terms of the mentorship that I got UH as a

as my career was developed. The first thing is I mentioned early on that Northwestern Mutual does a lot of leverage buyouts and UM and we continue to be very active in that part of the capital markets as a company. But back when I was making those investments, the opportunity to either sit on a board that we of a company that we were an owner of, or at least be part of a board meeting when I was in a more junior role and see all those CEOs in

action and how they ran companies. And it wasn't just financial services, it was aluminum die casting and retail products and consumer products and things like that. That ability to see UH, different industries confront similar problems, I think was was really helpful. UM. And then UM, you know my board, I've I've been you know a CEO for now going

on eleven years. Before that, I was very involved with our board, and what I would say is that um our board, my board has been unbelievable in mentoring me.

I can't tell you how many times when I was a junior executive making presentations to our board where a board member would take me aside after a board dinner and sit down with me for fifteen or twenty or thirty minutes and tell me what I did right, and tell me what I did wrong, and tell me where my style got of out of hand and things like that. And I think a lot of times people sort of say their board has been valuable, but I really need it.

The mentorship that I've gotten and sort of the the advice that I've gotten, not necessarily about strategic goals, but more around style and relating to people and engaging with people. I think those those two things have really had the biggest impact on my sort of development as an executive, and it's stuff that I'm very appreciative of. Really really interesting. You mentioned books. Let's talk about some of your favorites. What what are you reading right now and what are

some of your all time uh mostly loved books. Uh. Well, I am a big fan of history books. So you know, early in my career, you know, people would give me books like Good Degrade and stuff like that, and I've read them and I think they're good. Uh And I'm not complaining about it, but I found that I learned much more from reading about actual history and how people dealt with it. And I and I tend to, uh

you know, move from American history to European history. Uh and and I you know, I just have a huge interest in both of those. Right now, I'm reading this really, someone recommended this book. It's called Oliver wis Well and it's I can't I think it was published in It's it's it's the one exception to my rule because it's

a fiction book. But it's historical fiction about the Revolutionary War told from the perspective of loyalists, so people fighting against the colonists and the militia and George Washington and it's and it's really interesting, um to see it from that point of view. But I just finished that book. And I'm my wife and I just celebrated our wedding anniversary today as a matter of fact, and she gave me this book on Sunday, she jumped the gun a

little bit. And it's called Lincoln's Mentors. That's by a guy named Michael Gerhard, and it's it's really about all the people in Lincoln's life that influenced his policy. And I'm not about it on page a hundred. I just started it, but it's it's really fascinating to see how um, the early people in his career Henry clay Is is the one I'm reading about now, and how influential they were in his sort of development as a leader. Um and so UM. I'd recommend both those books, the ones

out of print. But this, this book by Michael Gerhard is I think it's relatively new and it's it's so far, so good. So that's what I'm reading right now. Very interesting. What sort of advice would you give a recent college grad who was interested in a career in either insurance or finance or both. Um. The the advice I got when I was twenty two is advice I followed at work for me, and so I always like to share

it with other people. And one of my neighbors when I was just getting out of college, said the secret and he worked at a bank of fairly senior guy a local bank in Malwauke, and he said, if you work harder than anyone else between the ages of twenty five and thirty five and never stopped developing additional skills, so you're always learning, you'll set yourself up for a

great career. And I've tried to follow that. Obviously, I'm well beyond thirty five now, but in my twenties and thirties, when you're young and you have bondless energy, there's no reason not to work harder than everybody else. And and I did that, and I think that was the foundation for the career. And then as as we talked about just reading books or finding other ways to constantly be learning, think about how Northwestern Mutual in thirty four years my

career there has changed. It's dramatic how we've evolved and changed and transformed ourselves. And you couldn't do that if you weren't reading and learning and observing and being curious. And so I think I think those two things, working hard and never stopped being curious, never stopped looking at other industries or people for for skill sets or ideas. I think it's really ultimately a great way to build a career, regardless of whether it's an insurance and finance

or probably anywhere else. Quite interesting. And our final question, what do you know about the world of insurance and corporate leadership that you wish you knew when you began your career thirty four US years ago? When I started at Northwestern Mutual, as I mentioned, I worked in the investment side. I could have cared less about life insurance. I just loved being a portfolio manager, investing in companies,

watching them grow, etcetera, etcetera. If I wish I had known what a great industry this is back then, and maybe this sounds a little self serving, but our industry is vibrant, it's growing, it's full of innovation, and I think sometimes people aren't attracted to it because they think it's kind of boring and old and stagy, and it's really not that. And I wish I had known more about that. I probably would have paid more attention to things going on around me rather than just honkering down

and doing the investment stuff. And uh um. From a leadership perspective, Um, you know, I'm still evolving there. But ultimately, what I've really learned about leadership that I didn't know back then is that you have to have both a keen um intellect and strategic mind, but you also have to have high emotional i Q emotional quotation and I and I really when I was younger, I thought, Wow, if I have a good idea to explain it, everyone

will just buy into it and start working there. And I totally under appreciated how much how important it is to engage with people not just on an intellectual level, but on an emotional level, so that there's so that they know that you care about them. They know that the reason you have this idea is not for selfish reasons, but it's for the good of the organization. They believe that what you're doing isn't just for personal aggrandizement for the but for the for the good of the organization.

I don't think I really appreciated that fifteen or twenty years ago. Maybe even ten years ago, I didn't appreciate it. But as I you know, as I as I've been in this job longer, you just can't underestimate the value of both of those things being integral to actually moving some things forward. Thanks John for being so generous with your time we have been speaking with John Schlifsky. He is the chairman and chief executive officer of Fortune one

hundred company Northwestern Mutual. If you enjoy this conversation, well check out any of our previous four hundred interviews. You can find those at iTunes, Spotify, or wherever you get your podcast fix. We love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. You can sign up for my daily reads at Rid Halts dot com. Check out my weekly column on Bloomberg dot com slash Opinion. Follow me on Twitter at Rid Halts.

I would be remiss if I did not thank the crack staff that helps put these conversations together each week. Maroufal is my audio engineer atko. Val Bron is our project manager. Michael Boyle is my producer. Michael bat Nick is my head of research. I'm Barry Ritults. You've been listening to Master's in Business on Bloomberg Radio.