Investor Mellody Hobson: 'If It Matters, It's Counted

JP Morgan Chase. She's also a prominent speaker on issues of diversity and equity in corporate America. She shares her thoughts here on what the industry's biggest players need to do to make progress in this moment that she sees as something like quote civil rights three point oh in America end quote. Melody has a lot to say. Thank you so much for joining us. Thanks for having Melody.

You have spoken often and very eloquently about the the obligation of directors of public companies to serve in those boardrooms as not rubber stamps, but advocates and almost investigators for shareholders. They directors really do have a fiduciary duty on paper, and they need to uphold it to represent the interests of shareholders. You serve on several large, very large public company boards as stay Lauder, Starbucks. You were

chair of DreamWorks Animation in its final years. I love your perspective on how being a director at an entertainment company is different from working in other sectors. What is it that is that is different or more challenging or more invigorating about the content business? Wow, that is a great question. I don't think that being on the board of an entertainment company is fundamentally different than being on the board of a coffee company like Starbucks where I am,

or a bank like JP Morgan. I think the issues come uh in different versions. But I think at the end of the day, the the the issues that boards confront are really universal issues. So I don't see them as being fundamentally different from your time and DreamWorks and your exposure to other, you know, other wide types of

media companies. Is there anything Is there anything that stands out in your mind that is challenging at the director level about the content business, which, as everybody knows, it's not a widget business. It's not making a certain type of of lipstick or you know, there's so much subjectivity that goes into the product. You know. The thing is everything is being disrupted everything. You know, when you're in

a certain industry, you always think it's just you. I mean the asset management business that has been disrupted by passive management. When I was on the board of Esta Lauder, the whole role of department stores was changing and they were responding to that. When you look at media, you have the disruption that's been very real, the the combinations

that have gone on. Obviously the destructions by technology because they're streaming and the like, and so I just don't think if you look at it any industry right now, the disruption is rampant, and so I don't think that it's a question of one being harder than the other. I think it's a question of how do you deal

with that disruption. I love the line from Warren Buffett was as champions adapt, And I think the great thing about the rooms that I've been in, I've been in rooms with champions, and so they figured out ways to adapt to the disruption that has come at them and ultimately how to survive or thrive. Can you give an example of, like how you've seen a CEO or or a leadership team or spawn to like, you know, an existential level of disruption, like how do you how do

you lead through it? If you don't know you know where the path is going? Well, that is that's the whole game. I mean, that's why CEOs get paid the big box. You know, you've got to be able to see around corners, you know, as Wayne Gretzky said that that's saying that has been probably overused. Go where the puck is going to be. I mean, that's the whole point. Um. If it were easy, everyone would do it. And so I think that we've seen leadership in lots of ways.

Lots of CEOs have have really pivoted in ways that are quite remarkable. I mean, let's look at Netflix. It used to be a DVD in the mail. When they made that decision to switch to to online and the like, I mean, it just was a game changer, obviously in a lot of ways. I'm sorry, a subscription model was a game changer for them, but it was a bold and I'm sure at the time very scary move. And obviously we're seeing some of these things right now with Disney.

I mean, existential factor, COVID there are no movie theaters, and therefore the streaming part of their business has become very very important. And you know, I thought it's fascinating

they've blown out their projections in a year. They're in year four of their own projections, which was again everything being disrupted, everything being accelerated, accelerated by COVID, which may inevitably, I know, there's so much pain and anguish and death and destruction has come from this pandemic, but that may

ultimately be a silver lining for them. The there's no question that the the acceleration of trends that we're already ongoing by the pandemic is going to be from an economic you know, it'll take ten years, but we will figure you know, at some point we'll look back and think and see those mild markers of this moment. For sure, it might be less than ten years. That's the thing, because things are happening so quickly. Um, I don't think

the old rules of why. In the last couple of years, there's been heightened focus on the status of women in boardrooms and c suites and in companies in in Hollywood as well as other you know, other sectors of the economy. Can you talk about your experience in in looking at governance and how they handle diversity and the promotion of women. Are there examples of companies that you can think of that have you know, programs or pipelines that are really working.

We've heard so much about you know, pipelines of talent to advancement being such problems. Can can you think of anybody in your experience that's really doing it well? Well, It's interesting because the boards that I've been on, they've always had a lot of women leaders. I had to say we had a lot of women leaders at dream Works and daily many of the people inside of production et cetera, um were women who were exemplary. I mean

I could I could call out so many. Um. The same is true of Starbucks if you look at leaders there, I mean we have a general counsel that's a woman, head of human resources as a woman Ross Brewer, or a CEO of the company of the woman, the person who runs America for all the stories for the woman I mean the prison and went to China is a woman. I could just go on and on. So the leadership of women there and had a technology. I mean I could keep going and look at if you morgan the

same sort of thing. If you look at that operating committee, it is has a very strong population of women at the top of that organization, and so um at least in the rooms that I've been in, that was certainly to invest the Lotter, which you know obviously as a company where ninety of their products are bought by women, women are really taking a very senior and leading role in that organization as well. So I had to say, I've been very fortunate that I haven't been in rooms

where it was a problem that had to be addressed. More. I've been in rooms where there was real attention hate to gender leadership and where I saw real outcomes that were very very positive. I think it's something you always have to be intentional about, so you don't just sort of hope it happens. I think when it comes to gender and race, you have to make sure that you're watching, because you can find yourself falling backwards if you're not

very careful. But fortunately the rooms that I've been in that if you live in front and centers on gender, and that's where I think right now we need to get to that same level as it relates to race. Whether it's the women or race. Is it. It sounds like it's like deeply grooted in the culture of a company that there is inclusion. Is that is that kind

of what what you found? I think leadership matters, and you want to make sure you have people who believe in these values because if they don't, you're not the company is not going to represent or be representative of the society that we live in. I think words also have to be very intentional and they're questioning on these issues, and again make sure they hold organizations accountable. I always talk about if it matters, it counts. Start counting, just count.

I love that saying math has no opinion. Look at the organization from top to bottom. Start at the board, look by ethnicity and gender. No multicultural umbrella where you put everyone together and you know, roll it all up so the numbers look great. By counting by ethnicity and gender, you see where the under representation is. You do the suite, C suite, you do the next level of executives all

the way down. No patting yourself from the back giving some big ethnicity number when your ethnicity comes from the assistant level. That doesn't work. So if you count by level, starting at the board, making sure that the board is holding the organization accountable. I believe also you get what you incent and I think incentives type to diversity. Actually that loves the need all um because people are motivated by their own self interests and pay being one of them.

And for most things in corporate America that matter, we have incentives tied to them, box office receipts, it could be eyeballs, it could be a product, lad could be earning, it could be profitability didn't go down all sorts of of um issues and seeing metrics and incentives tied to them in corporate America. So why should something is crucial as diversity, which we all say is a missuing critical,

also have incentives tied or tied to it. You're like, you know, in writing measurable actionable goals of hiring, of content, of you know, whatever it be. Is your sense as an investor and as a board member like that that is becoming more the norm, or is it? We think that it's still something that the companies yet to fully embrace. I think it's early days, but I think the train

is leaving the station on this one. So I think now the heat is on this issue is limited at the feet of corporate America, and there's nowhere to hide, there's nowhere to go. Um. I've really talked about I almost see this as as civil rights three point oh in America. You know, maybe the the Civil War was one version, the nineteen sixties one another, and this is another. That nine sixties version was around government, government policies, laws

and the life. And this is now about corporate America and what is corporate America going to do? It is where that at the feet of corporate America in a very different way than ever before, and there's no avoiding it because of the viral nature of our society. Not only are our employees going to hold us accountable, our vendors are asking questions about it, our customers are asking questions about these issues. And the larger society is holding

us accountable. And so I do think it's a new day and therefore on these issues, they're the ball is just getting rolling. But I think words to recognize, they have to be able to demonstrate, uh cause nfac just in general, as an investor right now, how do you size up the you know, the kind of the traditional entertainment industry it is going through seismic shifts. Is it's so disrupted right now that you would as an investor kind of shy away from it, or do you see

a lot of opportunity and all of that dismantling. We see a lot of opportunity. Yeah, we don't try await from it at all. Remember we are we're countrarian investors, and we're looking to go where others, for whatever reason, we think they're missing something, they don't understand something, don't they don't see what we see. UM. Earlier this year, we've we've been in and out of viacom CBS now

via com CBS. We bought our first years of those two companies when they were separate during the financial crisis, and that that being a phenomenally good investment for us, both of them. And then when the when the trip the murder happened between the companies or the acquisition, I should say, um, the stocks the stock just got humbled, as many people know UM and went to two times earnings, which is just like I mean, I say that with

an exclamation point because that's just really cheap. And we we became aggressive buyers, especially in March, and that's been a really good uh return for us in a really good story in terms of what is in terms of what has happened there and that with that company. But there are other places that we've been in the media space over the years and and you know, it's it's it's a space we know very very well compared to other sectors. Is there in terms of evaluating success, evaluating

leadership and goals? Is there anything challenging about Hollywood because the product is so different other types of of you know, manufacturing, our services, service business. I guess we don't see it that way. We see it as a very specific kind of product. And the challenge obviously of late has been the conversation around distribution. That challenge has been the conversation around competition, and that is also created opportunity. Uh. You know,

obviously it's been a consolidating industry. We've seen the industries consolidate and then we've seen them break apart. This is not new. This is is a dissert in many ways in terms of what has happened time and time again in business. Um. But what we're looking at is you're looking for companies that are brands or franchises. We're looking for businesses that we think over the long term, they have a niche or remote around them that make them

better than their competition. And as I suggested, we recognize in an in a world where everything has been disrupted, that does create some fallout and some wreckage, but also creates a tremendous amount of opportunity. You still have the domination of certain organizations that have only gotten stronger and better. In my view, Um, we don't at a real own Disney, but I watched Disney very closely, and Disney is an example of a company that's been very, very smart about

what they've done as this industry is consolidated. You know, Pixar, starting with Pixar, Lucasville, Marvel, Um, and then what they've done with streaming. I mean there's Fox, I mean there's there's a bold Bibber has had some very bold leadership, bold ideas, and this next frontier around streaming. I think they've been bold about that too with their recent announcements. So, I mean, we don't see it as being harder than

other things. It's just different. You know. I can tell you banks are hard, and I can go through all sorts of areas that are really really hard. Um, they're hard in their own way. Um, but not not not in a way that that makes it more challenging than analyzing other areas of American business or businesses around the globe for that matter. How does when you bring up Bob Iger, Um, we're obviously closely watching, you know, the

transition at Disney. He is enormous CEO shoes to follow as a director when you go through that kind of a shift, especially from somebody having coming off a long run of a lot of success. Is there like a boot camp for new CEO s? Is there is there something that that, particularly at the governance level, that the board can do to you know, support a new CEO. I feel, you know, Bob Jpeg again, he's following Babe

Ruth and lou garreg and Tom Brady. I'll rolled into one. Well, listen, I think that you know, he's worked along side of Bob Iger from what I understand, for quite a while. Um, I don't think there's a boot camp. I don't know how they run their board or their company. I could not in any way suggest to speak to how they're managing that transition. So far, so good. It looks like from the outside, and obviously by Biker is also still there. I think that um what I've been in companies that

have had transitions. You know, that's what boards are for succession, That's what it all comes down to. That's one of the biggest jobs you have as a board is to understand who's going to run the company, who's next in line. Really having a good sense of leadership, that's essential at

the end of the day. And so I think boards in general, no matter if you have a great leader, life lab viser, or a CEO that has struggled, I think they've been an equal amount of time on leadership and at the end of the day, that's what ultimately makes for success or failure with most businesses. Let me just in general, your sense of the macro economy are we Is it too soon to say that we're inching our way out of the worst of it? No? No, No,

think the market is already. You know, everyone keeps saying, you know, how could this market be so strong? Well, part of it is the fangs, which we know plus Microsoft that it really dominated the large caps docks and a big part of the index at this point. But I think the other part of it is that the market anticipates the future, and the market anticipates the future with a vaccine, and that future is it feels like

it's forever. But in the world of invest thing it's around the corner when you're thinking about next spring or next summer, and I think the most important thing is just to get to the other side. And it's interesting because I heard Bill Miller, who's a very very famous portfolio manager, say, you know, none of us gets on an airplane thinking about smallpox because we have a vaccination for it. And it will be like that, like that

with COVID nineteen. At some point will be vaccinated and the world will move on and hopefully we'll be more prepared for the inevitable next time. But the bottom line is, I think it uh. There will be ups and downs. The election creates uncertainty for sure, and so there I can't say that we won't have volatility. We will likely have more volatility, not less. But I think big picture, big big picture, three to five years from now, when we're looking back on this, it'll be a distant memory.

I've read a lot of concern about, you know, a new level of a new normal for the kind of chronically unemployed. Is the unemployment piece of this slowdown? Is that concerning to you at all? That? The rest concerning to thing to me right now is the stimulus chats. I mean that is where I feel like we could really really hurt ourselves. I think Congress did a very good job this summer of putting hands and money in

the hands of people who needed it desperately. And I think now we're at the point where people are running through their savings and things are getting very, very very tight. That has me very worried about an economic recovery if we go too deep into the whole in terms of individual death and the life. And so I think that more than thinking about a big job story the most the more immediate issue to me is, uh, this economic stimulus. Now. The sad thing is it looks like we're not going

to have it before the election. And this is this is this is just so sad because this is not about weeks. It's like everyday matters at this point, especially for those who have food insecurity and housing insecurity. It's just to me unconscionable what is happening right now. And it does have a longer term effect, but I think big picture. Once you get to a post vaccine economy, I think you will start to see, like we start with saw with someone opening in the summer, jobs come back.

But I'm concerned about the poverty that will be created along the way, especially when you think about school children. It's just heartbreaking that to think that there's some that there's a new level of halves and have nots those that you know, we've seen the stories of people having to go outside of fast food places to get to

get WiFi. It's that the the spotlight on the inequities is so is so great right now and and so and so magnified at a time when I think even people are more the the inequities and the kind of root causes have been put in such sharp relief. Um. You know again that you've spoken eloquently about the question of being color blind or color brave, the importance of addressing head on systemic issues, you know, long term problems. And the wealth gap is just the wealth gap between

black families and white fat it's just unconscionable. And I know you've been been speaking out on this and as an investor, have done much. You touched on a little bit are there signs about this this period that we're living in that give you hope that there is a way to close the you know, make progress on closing

the gaps that are so big in this country. Let's start off with we to help crisis, the pandemic that turned into a financial crisis, which we obviously know and of seeing firsthand, which has now also turned into a great deal of social unrest. We've been hit. It's a trifacta of bad there's no question about it. But the social undust is economic and people really do need to understand that economic inequality is what leads people to this tree.

Economic inequality is what leads to anger and what causes people to loot and things like that. I am never a believer in violence ever. Ever. Ever, however, if your children were hungry, what would you do? That's what I ask people all the time, to put some of this angst and desperation into perspective. The gaps are growing greater every single day. The statistics suggests that of adults Black adults in this country right now are unemployed five oh.

It is a stunning number, and we have to recognize unless we are very very again I use the word intentional and cognizant of this fact, no one wins. We will all be living in cities with retail stores more boarded up and and national guards having to be called in and things like that, and no one wants that.

So what really? I do believe that we must impress upon government, in corporate leadership, etcetera, that this needs to narrow the wealth gap by making sure they're true diversity and inclusion inside of corporate America where jobs are created. That is what will cure the ills of our society. It seems so simple, but it's actually true. To the extent, everyone has a shot, a fair and equal shot, we can change the whole paradigm on a going forward basis.

I'm hopeful that the message is landing because businesses are being directly impacted by this economic inequality that is is realizing itself as social unrest, and ultimately, in recognizing the that that social unrest is bad for business, businesses will pick up the mantle that has been handed to them and effect lasting and meaningful change. This might sound like a little bit of a pack question, but but it

is sincere is they're a role that Hollywood can play. Certainly, certainly you know, platforming certain stories and shining lights, and there's long list of examples where media, entertainment, television has brought light to social issue issues. This one is a little bigger and a little more intractable. But is there is there a role for Hollywood in advancing the the noble and just cause of equality. Absolutely, because first of all,

American media is one of our biggest exports. The whole world. The whole world sees who we are from our stories. We need to make sure that everyone's stories are told. I think a light has been a fire has been put underneath uh the studios and companies to really understand the need to have that content. And all of the individuals who show up on our television screens, on our computers at the movie that they're again reflect our society.

So I think that conversation is well underway. I am delighted to see, you know, the news of Planning Dungee and others who are now rising to the top of these organizations who have the big seats, because ultimately, at the end of the day, my belief is they will be um inclusive, the cognizant of the diversity that is around them and is ultimately represented in the content that is produced, and that creates obviously all sorts of UM role models that says, to young black or Latin ax

or women, what have you, I can be that person, and therefore maybe I should pursue a job in that area. So I think that's really great. I think at the end of the day, Hollywood UM is the trendsetter of the world, and so to the extent this becomes the trend UM in Hollywood. I think it has gigantic repercussions with outside sounding sounding pollyannaish or over simplifying the issue with gigantic repercussions UM for society. I mean, I love that story that you know, some believe we have a

black president because of the show twenty one. Excuse me. I mean that that that we got used to these ideas UM, and I think that that there's some truth to that. Absolutely it is. There is no question that it is one of our greatest exports for sure. UM Melody, thank you so much. I've really enjoyed this conversation. I would absolutely I would love to have an annual check in with you on the of the economy in our world. Thank you so much for your time, Thanks for having me,

Thanks for listening. Be sure to leave us a review at Apple Podcasts. We love to hear from listeners. Be sure to tune in next week, when Andrew Wallenstein's guests will be Universal Pictures Marketing co President Dwight Knes