This month, former Goldman Sachs CIO, CFO, and Global Co-Head of Securities Marty Chavez sat down with the co-founder and CEO of The Business of Business and Thinknum Alternative Data, Gregory Ugwi. The two discussed a broad range of topics, from Marty’s time at Goldman Sachs to his views on universal basic income, alcoholism, and workplace diversity.
Marty Chavez’s career lies right on the intersection of finance and technology. Chavez pioneered the integration of computer engineering into Goldman’s business model as a way to bring the bank’s trading model into the 21st century.
A computer engineer himself, Chavez started out at Goldman’s J. Aron Currency and Commodities Division back in 1993, where he worked as a senior energy strategist, or “strat” in Goldman speak. After a three-year stint with Credit Suisse, Chavez founded Kiodex, a web-based risk management company, where he served as chairman and CEO until his return to Goldman in 2005. And as Marty explains in the fireside chat, his pride prevented him from returning to the bank earlier. Then again, he added, he wouldn’t have found the initiative to get his startup off the ground if he’d stayed.
Despite his illustrious career, Chavez isn’t your typical bank exec — he’s Latino, openly gay, and far more open to the media than most who have worked at Goldman Sachs. As the most senior openly gay employee at the bank, Chavez arguably set an example for diversity in Wall Street. Last year, however, Chavez announced his retirement after 19 years with the bank.
Here’s the full transcript of the chat.
Gregory Ugwi: Welcome, Marty.
Marty Chavez: Gregory, how are you?
Gregory Ugwi: Very well. The first question I'd like to start with would be SecDB. How did you begin to build that? Assuming today you had to take on such a challenge, how would you prepare? How would you learn to build something like that?
Marty Chavez: You know secDB too, so you can assess for yourself whether it's led us up to the Wall Street Journal's billing or not. I'll tell you about how it showed up for me. I never planned a career in finance, never even occurred to me. Most of my college class, I'm in the class of '85, a lot of people went to Wall Street. The '87 crash happened, and then they went and did other things.
I basically don't know anybody from the class of '85 who's on Wall Street, but for me it was just a freak occurrence. I was in an MD PhD program and I was dissecting cadavers while the stock market crash happened, so I had other problems. Then just out of the blue, I got a letter from a headhunter, and this is in the days well before LinkedIn, where he had done some work. Armen, who you all know from Goldman, Armen Avanessians had told this headhunter, and this is 1993, "I want you to make a list of entrepreneurs in Silicon Valley with PhDs from Stanford in computer science." I was just on the list.
How do I know that? Well, because my officemate, who shared a little cubicle with me, who's vastly more successful, got the same letter. He and I were both working on machine learning, we were both really depressed because the compute power was too low. We were looking for other things. He had the bright idea of applying machine learning to help people figure out what movie to watch. And of course my office mate was Reed Hastings, founder of Netflix.
Anyway, I went to Goldman. I joined this crazy group of three people who had this ambition of building a single piece of software where you could put all the trades, all the time series, all the models, all the risks, all the reports for Goldman Sachs. Which was a crazy aspiration because we barely had the buy-in for the foreign exchange business, barely.
Armen would tell us, "Just pretend you're doing things for the foreign exchange business, but you're actually going to be building this core infrastructure that's going to be so powerful, it's going to let us ask counterfactual questions like what if dollar-yen were here. But if interest rates were there, and it's going to tell us the answer, and that's going to give us an edge. " That was Armen's vision and we were executing on it.
“Look around and make promises to important people that are going to make their lives better, and then deliver on that. I've found if you do that, that's the best marketing.” - Marty Chavez
So I arrive at Goldman and they say, "Would you please write an object-oriented transaction-protected distributed database in C from scratch?" I thought that was completely crazy. I don't know, I was fortunate or unfortunate. I took a lot of computer science classes, basically absolutely every topic, except databases. Maybe if I'd taken a database course I would have known what a quixotic ambition it was to do this, but I didn't know any better. That became the server for secDB.
Nowadays, and this gets to your question, Gregory, we would recognize what the team built as DynamoDB, it's very similar to Amazon Web Service's DynamoDB, but it didn't exist in '93, so we wrote it. We needed a scripting language where people on the trading desk could ask questions and get answers and do numerical analysis. There was no Java, there was no Python, there was nothing, so we wrote something called Slang. Again and again, we wrote all this stuff that just didn't exist. If I were doing it now, it's an amazing time to start this now. I was thinking about dependency graphs, so I found a beautiful dependency graph, open source package in Julia that does way more than what we ever did with SecDB. It's amazing that you can now build on top of open source at an abstraction level — it’s just light years beyond what we had in '93. Now it really becomes a software stack selection problem, which is hard in its own right.
Gregory Ugwi: When I go through your resume and you talk about secDB, and then Slang, and then you just keep going, it does seem like you just had success after success. Was there any point in your career where you failed?
Marty Chavez: Oh, yeah. Absolutely. So it's biased, you’ll see more if you Google me. Be careful about anything you read on the internet. More is written on the things that worked well than the things that didn't, I don't know why. I learned a lot more from the things that didn't work well. As an example, your roommate mentioned Kiodex. Was it a success, was it a failure? It failed, and then it didn't make me billions of dollars, but it succeeded in that it was one of a tiny handful, maybe 1%, of software companies founded in 2000 that returned money to investors. Almost everything was a complete flameout from that vantage, why? Because they raised money at the height of the dot-com bubble. So I don't know, are we in a bubble now? Who knows. But here's what I learned from that experience: don't believe any hype, especially your own, and certainly not the market hype.
When I started that company with almost no effort, I raised $15 million practically overnight. It was straight downhill from there. That was the high point of the company, because the dot-com bubble burst a week after I raised that money and it became almost impossible for the next four years to raise any money at any terms. Yet why do I think of it as a success? Well, it was because we returned money to investors, and my co-founders and I all went on to do interesting things. One of them is a senior partner at Goldman, another one is a US Congressman from the State of New York, another went on to become president of the New York Stock Exchange. We all did interesting stuff and Kiodex really got us going.
Why it was especially valuable is that we had raised some money, and we had to build some software that got to cash flow break even with real cash paid by real customers who had the unbearable pain that only we could solve. All the hype went away, and we just had the hard reality of selling subscription enterprise software in a time when no one had heard of the term SaaS — the term SaaS did not exist. We had to invent all of that and invent all the software, and the software had to work and it had to be on time and on budget. That terrible ruthless discipline was what I brought with me when I rejoined Goldman Sachs after Kiodex. I had the opportunity, and you were the victim of it, to apply that kind of ruthless methodology of getting software done on time at the scale of Goldman Sachs. So that's something I learned immensely from. I learned how to sell enterprise software. I would say I learned more lessons from that.
“When it's your ego talking, it's almost always causing you to make poor choices. Well, I think it is [about] having friends and people who love you who help you calibrate to reality.” - Marty Chavez
Then my other lesson was the financial crisis, the collapse of 2008. That was an epic failure in every possible direction for Goldman. It was not a financial failure, but it was a reputational calamity. Digging ourselves out of that and then embracing regulation, which was something where I had a role, where I learned a lot. I was sent out to go explain our business to the regulators and build trust with the regulators at a time when that trust was completely absent. Generally, while the failures were deeply unpleasant, they were really important ingredients of later successes.
Gregory Ugwi: You hinted at the discipline that you need to have with focusing on value to your customers. How do you balance working on technically interesting problems that might be cutting edge versus more mundane tasks that move the needle commercially?
Marty Chavez: I don't know if I'm the best person to answer that. I tend to have ideas that are sound with timing that is questionable, and you really need both. You can have a great idea that's too early. When I look back with the investors in Kiodex and we ask ourselves, "With perfect hindsight, what would we have done differently?" Our answer is we would have started five years later. That would have been the main thing to have done differently. For me to even get up and do something, it has to have some edge to it. I just don't get excited doing something that's been done before by lots of people, so naturally, I want to do something different. That's a wonderful inclination, but it's also dangerous because maybe nobody will pay you a dime for that.
I think Armen, who is the progenitor of strats at Goldman Sachs, strats anywhere, he invented the term when I was strat number 12. He taught me a lot how to balance the way you described. He told me when I joined, and I didn't really understand what he was saying when I joined Goldman Sachs in '93, but he said, "I've told some oil traders and you're going to be working on their risk reports. Whenever you bump into these guys, and they ask you, 'how's it going on the oil risk reports?' I want you to smile and say, ‘it's going great.’ Meanwhile, you're not going to be working on that at all, you're going to be building deep fundamental infrastructure that's going to be valuable for all the businesses. But if I tell them that, they're paying you today to do that foundational work for all of Goldman Sachs, they're not going to like that. So we're not going to quite lie, but we're going to do both, we're going to do the foundational work and then we're going to give them a steady drip of things that are useful for them today so that they'll keep paying the bill." I think doing both is a tricky balance, but it is generally the best way to proceed.
Gregory Ugwi: One thing I want to understand is for someone like you, you've done great technical work, but you've also been recognized for it. How much self-promotion is ideal?
Marty Chavez: I'll tell you how I managed it, and it worked out well. Is this a general recipe? I don't know, but generally, it's worked for me. I show up on the oil desk at Goldman Sachs after doing a couple of years of what you would know as core secDB. I got there and I immediately recognized the environment. The environment had me flashback to when I was in seventh grade and I had skipped sixth grade — I was really good at math so I'd skipped a few years of math. So I show up in this seventh grade class and because I had skipped the previous grade, I'm expected to be just a mediocre student, but I was a good student, and the current valedictorians, the valedictorians of that class up until that time, wanted to kill me. There is no other way to describe it. They were ruthless, and so I needed a coping strategy.
My coping strategy was to identify the beautiful and popular people in the class and help them with their math. I figured somehow that if I did that really well, that they wouldn't kill me, and I did do that very effectively. Years later, I looked at the traders all around me and I thought these people were going to eat me for breakfast. But I know what to do here, I'm going to help them with their math, I'm going to become indispensable with their math. I turned to the trader next to me after understanding a bit of his reality, and I noticed a very simple and obvious thing, the market would close and it would take him another three or four hours to wrangle all the data sources and spreadsheets and terribly written programs to eke out a risk report and a profit and loss report. I said, "I am going to get you out of the door within 15 minutes of the market closed, and you will only have to press one button and I will do the rest."
“Now, I stopped drinking. I think the simplest way to describe it is with an old Chinese proverb: ‘First a man takes a drink, then the drink takes a drink, then the drink takes the man.’” - Marty Chavez
I didn't give him the time frame, but I did give him my commitment to do that, and he saw that time for him to get out the door shrinking and shrinking and shrinking and shrinking until it became true. By the time it became true, of course, I knew everything about the business and I was indispensable. So I found that to be a useful way to proceed. Look around and make promises to important people that are going to make their lives better, and then deliver on that. I've found if you do that, that's the best marketing. Anything that you attempt to do by crowing about your accomplishments or putting meetings on the calendar so you can claim you want mentoring, but actually talk about how great you are and campaign for more money, I don't find any of that works. But I find if you make someone around you happier and more successful in their jobs so that they look good, that just works every time as a strategy.
Gregory Ugwi: I know you were close with Gary Cohn, and when you left Goldman to go to Credit Suisse, he told you, "If you ever change your mind, give me a call." Then I heard you regretted actually leaving Goldman, but you didn't want to call Gary first just out of pride. Obviously, I admire you a lot, but to be honest with you, it seems petty in a way. I just want to understand how you manage that versus being just ego driven? How do you differentiate this is who I am versus this is what I do?
Marty Chavez: Again, I'm happier with myself now in that department than I have been at any other time in my life, but it's still a work in progress. I can look back on my 32 year-old self and say, "Do you know what, with everything I know and being wiser and having more gray hair, the right thing would have been actually for me on my very first day at the other firm to call Gary and ask for my job back." So I don't think that pride served me at all well in that area. But these counterfactuals are very, very hard because I think I would have been richer if I'd done that, but I wouldn't have started Kiodex. I'm pretty sure that the brutal experiences of Kiodex during the dot-com bust were an essential part of what worked well in my second tour of duty at Goldman.
It's tempting to say, "Well, I should've just called Gary." Then life took me down these other paths. In retrospect, I don't know what would have been the right thing, but I do know that ego reliably gets in the way. I would say when it's your ego talking, it's almost always causing you to make poor choices. That'll just make us a definitive statement, the hard part is how do you know when it's your ego talking. Well, I think it is having friends and people who love you who help you calibrate to reality. I think it's having external people, who for me they've been coaches, mentors, sponsors who sometimes I'm paying them and sometimes I'm not paying them, but they increase my awareness about things that I don't know, and I don't know that I don't know them. So how else are they going to become known to me unless I'm actively working on all of this. Meditation, all of these things help so that you can differentiate what matters from the endless ego-driven thoughts that run in all of our heads.
Gregory Ugwi: One thing that struck me is you quit drinking in '97, and this is about when you left Goldman to Credit Suisse. But it seems to me like, I don't drink, I quit drinking in college, but my experience has been drinking is an important social part of business. Why did you quit drinking?
Marty Chavez: I don't know how much time you've got on that one. I will say for a long time, I didn't talk about sobriety at all. It was of the many parts of myself, it was probably the last one that I started talking about, especially publicly. Here's what I discovered: I can't tell you how many times colleagues, but perhaps even more interestingly, clients, have come up to me at these exact boozy industry events where I am generally the only non-drinker, and it's happened 100 times. They say, "Marty, it means a lot to me that you talk about this stuff because I think I might have a problem and you're the only person I know who's in the industry and seems to have had figured it out, can we talk about it?" This didn't happen once or twice, it's happened 100 times.
Now, I stopped drinking. I think the simplest way to describe it is with an old Chinese proverb: “First a man takes a drink, then the drink takes a drink, then the drink takes the man.” I was well into the middle phase and headed fast into the third phase. So I had the good fortune, no personal virtue to become aware of that and some friends made me aware of that and I started walking down a different path. I can tell you that one of my great fears was, “I'm in the oil business, this is going to be a catastrophe, every everybody's drinking all the time, what am I even going to do or be if I'm not going out and drinking with the traders after the market closes and drinking with the clients at dinner and it's drinking, drinking, drinking.” I was going to Houston all the time and there was in the middle of the oil and gas patch, an awful lot of drinking. I thought this was going to be a disaster for my career.
Then I realized that's not real, none of that is real, that's just the liquor talking, it's just giving me reasons to take a drink, none of which are real. I would put “you got to drink to succeed” in exactly the same category as “you got to play golf to succeed” on Wall Street. I've never played golf, I've never held a golf club, it's never occurred to me as interesting. Once I joined the board and we were asked to list our hobbies, and I wrote my hobbies as running, reading, lifting, and listening to classical music, and one of my fellow directors said, "Those aren't hobbies, hobbies are golf." Thank you for sharing your view on what counts as a valid hobby and what does not. Ultimately I took a lot of comfort in some advice that my mother had given me, she had so much good advice on so many topics and I have to say a little bit in Spanish. We'd all asked her a question, "What will people say?” In Spanish it's the same thing, “que dirá la gente.”
Gregory Ugwi: You're someone I admire not just because you're rich or you've achieved certain success, but how you've done it and the values it embodies. When I meet people like that, I like to ask some more social oriented questions that I think about and I wrestle with. When I worked at Goldman internally versus how other people viewed it, I wonder if there's a way large investment banks can better make the case for the value they add to society. I'm talking to regular Americans like high school graduates, the meaningful, impactful creative work that is done every day behind closed doors. How can they tell that story better?
Marty Chavez: Up until the financial crisis, the media strategy of Goldman Sachs was “no.” There was a press person at Goldman who was known in the market as Dr. No, because whenever he was asked anything he said “no,” or “we have no comments,” or just “no” because it took too long to say “no comment,” so there was no media strategy. So when the financial crisis occurred — I keep mixing up all the crises I've been through — nobody had any idea about Goldman Sachs. It wasn't like Morgan Stanley where you might have seen a brokerage office in your hometown. Nobody had ever seen a Goldman Sachs sign because Goldman Sachs policy was we don't put our logo on any of our buildings. Like the headquarters in New York doesn't have Goldman Sachs anywhere on the outside of the building, same statement for all of them.
There was no public strategy because the view was always, “we're a wholesale bank, if you don't know what we do, then we don't care if you know what we do.” That I think was the approach. That didn't work so well because after the financial crisis, in the absence of any knowledge about what Goldman Sachs was good for, people made things up, like, “they survived the financial crisis, they must've caused it somehow.” That was something that got made up and became really vivid for people in the endless retelling of it. If you're not telling a good story, a compelling narrative about yourself, people will make up narratives about you. So that's one thing I learned.
“Up until the financial crisis, the media strategy of Goldman Sachs was ‘no.’ There was a press person at Goldman who was known in the market as Dr. No, because whenever he was asked anything he said ‘no.’” - Marty Chavez
When I became co-head of the trading business, I did a little survey. I walked around the floor and I'd asked junior and senior people what I thought of as a totally fair question, "How do we make money?" I figured you're partners at Goldman Sachs, it is okay for me, your division head, to ask you that question and see what you come up with. Then I would ask a related statement, "What are we here for? What is our purpose? What is our mission?" It was so depressing, the answer I'd get. The answer I'd get from so many people on the question of what are we here for? What is our mission? What is our objective? If you don't like the word mission, or what are we maximizing? How about that? What answer do you think I got from most people, if they could even come up with an answer as to what are we maximizing?
Gregory Ugwi: Making money for ourselves.
Marty Chavez: Yeah, revenue. Even more specifically, top line revenue. Yet more specifically top line revenue with my name next to it on somebody's dashboard. That would have been the sad truth of it, but then I would say, "How can that objective possibly be interesting to anyone other than you and how could it be even remotely interesting to our clients?" So time out, let's come up with what it is we're here to do. The thought experiment is really pretty simple, if there were no Goldman Sachs trading businesses nor any of its analogs or peers, if that whole thing disappeared overnight, what would be different about the world? Well, here's the thing that would be super different about the world. If you owned some financial assets, stocks, bonds, derivatives, whatever, you'd be stuck with them, good luck selling it. If you suddenly wanted to turn it into cash, it'd be a lot like selling your house, maybe worse. Put it on the market, find a broker, show it 100 times, wait nine, 12 months. That's what the reality would be.
“If you're not telling a good story, a compelling narrative about yourself, people will make up narratives about you.” - Marty Chavez
So what is the social purpose we serve? Our purpose is you, the client, have something you want to turn into cash or you have some cash you want to turn into other kinds of financial assets, you come to us and we do that for you. We don't say, “oh I don't really want to buy those stocks off you because I think they might be going down,” we don't do that, that's not our job. Our job is to say, “here's where we'll buy them and here's where we'll sell them,” and we do that all day. It really comes down to providing a valuable service to clients. Then how we're going to do that risk transfer, we're going to do it in highly automated ways so we can do it in a scalable way. We have more ways to manage the risk ourselves, and it's a virtuous cycle of getting better and better at turning the risk people don't want into the risk that they do want.
Now you're starting to have a narrative about why it is that we're good, we're good for the planet. But there's been very little of that work sadly. When I was CFO, I certainly gave it my best to explain that that's the business because people would always ask me, "Well, the stock market's down, how come your results are good, or the opposite. The stock market's up, how come your revenue declined?" Because even people who should know better don't actually know that the business isn't really linked to market levels. They don't know that because we haven't done a great job of explaining it to them in plain English.
Gregory Ugwi: I grew up from a very poor family and I went to work at Goldman. You see a lot of creative people, they make a lot of money. Income inequality is something I think many people care about now. If you see a chart of what the bottom 50% earn, it's going down and what the top 1% earn is going up.
There are two schools of thought. One is, let's say AOC says there should be no billionaires in the US as long as they are poor families that struggle. Another one is, let's say Paul Graham, the co-founder of Y Combinator, he talks about how income inequality is the natural part of capitalism and it's a sign that the process is working. The only way to reduce it will be to hurt the actual rich people, you don't actually help the poor people. So if I'm in a race with Usain Bolt and we do a 100 meter dash and the gap is too much, the only way to reduce that gap is to hold Usain Bolt back because you can't make me run faster. So if you have a business person and you have Elon Musk, over time, you can only hold the Elon Musk back. So I would just like to know how you think of income inequality, is it the future bomb?
Marty Chavez: It is a consequence of the capitalist system as we've constructed it. Gregory, the thing that concerns me is that it's a power law, it's not a bell curve. So you look at me and you think, "Wow, that guy's really rich," and I look at a bunch of my friends and they're much richer, and then they look at Jeff Bezos and they feel like a pauper. No, that's power law at work, it's insanity. It also interacts with the basic feature of human nature, which is that our entire nervous system is designed to notice differences, not absolute levels. So we're only noticing the people who are richer than us and are poorer than us, and then we're feeling good when we're richer than other people, it's terrible I'd say, and bad when we're poor. Even if in every way we're doing fine, we just compare. This comes from AA — it's a great adage from AA: compare and despair, they go together.
At the same time, it isn't an inevitable feature of capitalism that the inequality be as extreme as it's getting. There have been long periods in American history where there was always inequality, but it wasn't this kind of inequality. Then you could also ask important questions about the distribution of income. So maybe inequality is different if it isn't quite so extreme and maybe it's differently perceived if there is some baseline and it's asymmetric. Thinking pragmatically, what I would say to anyone who's a fan of pure capitalism. Well, let me first say, I am not in AOC's camp at all, I didn't vote for her, I wouldn't vote for her. I hear her and she's just not saying anything that makes any sense at all to me. At the same time, I am a big proponent of a universal basic income.
My personal view is that if you're just being pragmatic and looking at inequality and not thinking about some abstract concept of justice, you don't want the inequality to be so extreme that it leads to a revolution. So you ought to be prepared to pay to decrease that probability. This is what I say to friends who you might call oligarchs. Why? It would make sense for everybody to have some baseline income and why we should all pay for it. So I just keep coming back to an old idea, John Rawls, A Theory of Justice, I don't know if you've encountered it. But it's a famous image that I think is very beautiful and he calls it the veil of ignorance.
“Even people who should know better don't actually know that the business isn't really linked to market levels. They don't know that because we haven't done a great job of explaining it to them in plain English.” - Marty Chavez
A just society is defined in the following way. Imagine that we are not born into the world yet and the world that we're about to be born into is hidden from us by a veil of ignorance. We know the structures of the world, the opportunities, the way income and capital are generated and distributed, the roles that exist in the world. What we don't know is what role we're going to be thrown into when we're born into it. But we get to design the world knowing that we could be thrown in in any of those roles. What kind of world would you design? I would say that the world we have is very, very, very far away from that. So what are we going to do about it?
Gregory Ugwi: I have something that keeps coming to my mind. I'll just propose it and I'd like to see what you think. You joined Goldman, it was a partnership, and then eventually you worked at Goldman and it was a publicly traded company. You were the CFO. So what do you think of abolition, getting rid of equity for service-based industry? It doesn't seem fair to me. Jeff Bezos started Amazon and he did great work, but is it right that he should earn dividends forever and ever and all the work great Amazon engineers will do, or should it be more like a partnership like in a law firm? So if you're a service-based industry, you're not allowed to have equity. Partners that are adding value will get a lot of money so you'll get rewarded, you get incentivized, but you can't own people's work forever.
Marty Chavez: I love that concept intellectually. Here's where it reaches some limits — it works very well for a law firm. What is the tail risk, the cataclysmic downside risk for a law firm? It probably takes the form of reputational risk I suppose. Though it seems to me that the accounting firms are the ones that have that tail risk, the banks have that tail risk. There aren't very many law firms that have gone out of business because they got hit with some kind of malpractice or forced to pay based on a bad outcome for some advice that they've given. It doesn't happen very often. The partnership structure makes eminent sense for law firms, and I'm not aware of a law firm that has any other structure. If there's a publicly listed law firm, I can't think of it off the top of my head now, or a financial services firm of the kind that you see in Goldman Sachs, where if you look at that trading business I just described, you've got some risk you don't want we'll buy it from you, you want some risks you don't have, we'll sell it to you,
That can leave you holding the bag when a financial crisis happens in some really extreme ways. Or as we've seen more recently with 1MDB, there can be all kinds of consequences, there can be callback, you can lose more money than you made again and again and again and again. So this is the reason Goldman Sachs went public. The problem it had that had become existential was it's a partnership, so when you go limited, you take your capital out, there is no permanent capital. If Goldman Sachs, Morgan Stanley, Lehman, and the others had gone into the financial crisis without permanent capital, they would all have been wiped out pretty early on. So some businesses you have to have permanent capital, it's in the nature of the business.
“The best kind of action, and my mom would always say it this, is just be an example yourself, be successful yourself, that's the greatest contribution you can make to other people of color.” - Marty Chavez
I get your point on Amazon, but Amazon, I admire it. Does it make sense to me that Jeff Bezos is likely to be worth $200 billion this year post-divorce? We could discuss that. At the same time, Amazon has done some pretty amazing things during the pandemic. Yes, it's capitalism at its most extreme and also I'm very happy for those Amazon packages that come every day because what else are we going to do? I'm very happy for all those machines out in AWS. Somebody had to invent that and somebody had to be rewarded for it and all those engineers signed up and got paid and they got some equity too. Bezos was there first. So I am not inclined to take away Jeff's equity. But would I think businesses have a better alignment of incentives if it really is a limited partnership? I think they do, I'm agreeing with you, it is better that way. How do you get those virtues and have permanent capital? I think it might be squaring the circle, I'm not sure how you do that.
Gregory Ugwi: I was one of the few black people in Goldman at that time and I observed you. One thing is you were very active with Latinos in Goldman, you were very active in the LGBT community, you were always true to yourself, at the same time, you weren't angry. I have a lot of friends that now they're more and more becoming more like activists and you spend a lot of time sort fighting with Proud Boys on Twitter. Inevitably, you yourself start being hateful and being close-minded. How do you manage that? How do you manage being true to yourself and understand that you might get attacked for your identity, but you're still open and you're still willing to connect with anyone?
Marty Chavez: Well, thank you. Thank you for saying all that, Gregory. You and I were among that handful of people of color at Goldman. I would thank my mom and dad, they understood anger. Mom would talk about her and her family, when she was growing up, all they could think of was getting themselves out of Navarro. Then, they finally bought a tiny little house and then the city came and built the sewer plant immediately next door, and that was that for the value of their house.
She's angry for sure, and she would talk about it a lot as a central event in her life. We've been through it, you've been through it, I've been through it. The people who would say, "Oh, well." This actually happened. I remember when I was applying to colleges, one of my dad's colleagues asked which ones I was pointing to and which ones I got into. My dad answered and he said, "Well, my daughter would have gotten in too but she didn't have the right last name." There's always that nonsense out there and much, much, much, much worse.
But my parents raised me in such a way that I understood, okay, anger is part of the human condition, and being angry unless it's righteous wrath that's turned into action is a complete waste of time and the best kind of action, and my mom would always say it this, is just be an example yourself, be successful yourself, that's the greatest contribution you can make to other people of color. So if other people could think that there's a glass ceiling, show them that there is one. My mom would always say, "You're Latin, to get half as far, you're going to have to work twice as hard, and I don't want to hear a single complaint, you better just get busy." Then when I came to realize that I was gay, I took that to mean gay and Latin, two strikes, I probably have to work 10 times as hard to get one tenth as far.
I think that served me really well. I'm just not an angry person, nor do I think it's good luck, nor do I think most of the time that arguing, I feel like it would just diminish me and not give me anything I want, not give me peace of mind, and certainly not make me richer. So why put any effort into it? Why not pour my efforts elsewhere? But I'm seeing the same thing, the same phenomenon that you described. I'm seeing it my own family, we're getting COVID PCR tests and having some people over for new year, and I have a niece who she lectures all of us on how we are insufficiently Hispanic and how we don't understand race relations, and she's going to explain it all to us.
It's so extreme and so unpleasant that I seriously considered not inviting her. Sometimes it's appropriate and sometimes it's not. So if on new year's Eve, she starts lecturing us, I'm going to just say, I understand that you're angry but this is my house, and I'd like us to change the topic right now. So there's a time and a place for it. I don't know if I really answered it. It's just some of my thoughts on a complicated topic.
Gregory Ugwi: It was very powerful and I think our moms are very similar.
Marty Chavez: Exactly.
Gregory Ugwi: Maybe we had the same mom.
Marty Chavez: Maybe so.
Gregory Ugwi: We only have 10 minutes left. I have a lot of questions I want to ask, but I don't want to be greedy. There are many things on my mind and I can talk to Marty forever, but I think Boris is going to involve the audience.
Marty Chavez: Wonderful.
Boris Spiwak: We have some great questions from the audience.
Janet Yu: Hi, my name is Janet, I'm a Sparks/CDG fellow from Close the Gap Foundation, and I wanted to say first, thank you for sharing your story, Marty. As a low-income student in high school, I was curious on your opinions on representation of social background and also ethnic diversity in your workplace, especially being a part of the LGBT community and also the Latin community and also being in Wall Street, whether you believe that the current diversity is ideal, or do you wish that there was an improvement in diversity? Also any motivations that you have for low income students as well?
Marty Chavez: Thank you for your question. The first part is easy to answer, it's far from ideal. A story I love telling: one time I was in a conference room and I was talking to another partner who was Hispanic. We weren't talking about being Hispanic at Goldman, we were talking about a deal. A third partner, actually it happened to be our boss, walked by, saw us in the room, ducks his head in, leans in, and says, "50% of the Hispanic partners of Goldman Sachs right here in this room right now." Then he closes the door and leaves. So his point was just that there were six out of the 400 Goldman partners who were Hispanic, which just doesn't seem like the right answer and three of them were in that room right now.
So here is just a fact you'll observe everywhere you go and it's not specific to Goldman or Wall Street, it's absolutely identical in tech. So you look at entry level positions and they reflect the demographics of the cities in which these companies operate. You look at the assists, you look at the analyst, it might be exactly on top, but these days at Goldman Sachs if you look at the New York office, roughly 9% of the analysts are Hispanic and about the same percentage are black. This is relatively new, this hasn't been true for very long. But as you go up the ranks, whether you look at compensation or title, it doesn't matter what diverse category you look at, it could be black, Hispanic, LGBT, women, different abilities, veterans status, it could be anything, and you will observe that percentage drop, just as you go up and seniority. Until you get to the partners, and there's a little over 1% of the partners are Hispanic, starting from nine or 10% at the analyst level.
Passage of time is not going to fix that problem all by itself. It's going to require active intervention and it requires a lot of daily work not grand pronouncements. One thing that drives me crazy is when companies say, "We're going to focus on being more diverse." Focusing is not an activity. So what? I knew at Goldman we didn't pay people for focusing, we paid people for outcomes. So focusing is not going to do it, and it requires actively intervening every single day to change the environment.
So as for motivations and ideals for my personal life that kept me going through the hard times and through the obstacles, I wish I could say there was one particular thing. But if I had to come up with that, is my list of short, sacred, personal priorities, it's not like it's a great list or the right list or needs to be your list, but it is my list of top three priorities, and whenever I've got a choice to make, do I go left to right, choose A or B, go up or down? I look at those three priorities and I choose the one that is most consistent with those priorities in order, and I don't choose the one that is less consistent. So my top priority is peace of mind, my second priority is family, my third priority is my work. So I would say having peace of mind at the top of the list makes me better for my family and it's also kept me away from all kinds of things that might've gotten me in trouble through a long career on Wall Street.
Murat Uysal: Hi. Thanks a lot for this great conversation. I would like to ask Marty if he is doing any angel investing. If so, what are the types of teams he thinks will be successful?
Marty Chavez: Any angel investing. I have probably 100 plus angel investments that it seems like what I'm mostly doing these days, which is an incredible privilege and it's a lot of fun. I think one of the best things about having worked on Wall Street for 26 years and worked at the intersection of finance and technology is that I'm lucky to have a wonderful deal flow. So several times a day, someone will send me an email that says something like, "Hey, Marty, I met this entrepreneur and what she's doing is so inspiring." This is a real story, and I just put a bunch of money into her seed round. In one case, this is my mentor, Eric Schmidt, he basically just shared with me that I was going to be her mentor. I immediately said yes before even meeting her because he has a strong view, which I share, is that he receives incredible coaching and he needs to pay it forward, he did that with me, and I need to be doing that too, and of course I need to be doing that.
Two or three times a day, some investor I know will talk about a deal, an entrepreneur advising or coaching, I'm on nine boards, so there's no more boards that could possibly be on. But advising is possible and so this has led me to a wonderful set of investments where I typically have some advisor options, and then I participate in the seed round and a few cases I'm on the board or I'm on the board of advisors in other cases. I would say most of my investments have an emphasis on machine learning, that's what I did for my PhD work. Now some 30 years later after my PhD was granted, we can actually start to solve interesting problems, so I'm really passionate about it. In most cases, it's tying machine learning to problems in life sciences, so those are my angel investments.
Sol Soloncha: Hi, Marty, thank you very much for sharing your story and really interesting to hear how you have taken your life and achieved such success in the financial industry. My question for you is how can the financial industry provide leadership in addressing climate change that has been considered an existential threat? I believe you have some children, so looking to take responsibility for the future, how can the great power of the financial industry be harnessed to deal with this?
Marty Chavez: That's a fantastic question. I do have two young children ages four and six, they just got back from school and one of them is screaming in the background, in case you heard some of that. So this is one of our existential problems, crises, and we have several. I would say inequality in all its forms, income, racial and so on, is another one and there's a list of them, but these are at the top of my list, I think anyone's list, and there is something to be done. I'll give you an example that is a live example, I'm president of the Harvard Board of Overseers, which is an incredible role to have at any time, but especially at this time when we have a pandemic on top of all of our other problems. Harvard's worked out an ambitious and what I would call essential plan, there's a raging debate about whether the plan goes fast enough, but it is committing the university to carbon neutrality, net zero, by 2050, but committing in an extremely broad way, which is the university itself will be carbon neutral.
That you may think that's no big deal, but when it's a university that's 400 some years old, there's a lot of old buildings, and making them all carbon neutral is a multi-billion dollar expense. In many cases you have to tear them down, but they're historic, and so it's even more complicated to keep them but make them carbon neutral. But that's least of it, then there's the endowment, and this is something that financial services companies can do and are starting to do as well, so it's a $47 billion endowment. First of all, we've got to start with definitions. What does it even mean for a portfolio of financial assets to be carbon neutral? There is a discussion, divest fossil fuels, I know that's extremely satisfying in so many ways and it hearkens back to apartheid and things that worked to apply pressure to South Africa. My own view is that we can learn from that, but it's different for climate change.
“Passage of time is not going to fix [workplace diversity] all by itself. It's going to require active intervention and it requires a lot of daily work not grand pronouncements. One thing that drives me crazy is when companies say, 'We're going to focus on being more diverse.' Focusing is not an activity.” - Marty Chavez
I think defining fossil fuels and what a fossil fuel stock is — I get it's very complicated in an economy that is entirely based on fossil fuels. So there's some basic definitional work. How do we take a portfolio and have it appropriately assessed as a carbon neutral portfolio? Is it or is it not? Pharmaceuticals ultimately are all based on the fossil fuel chain, so these definitional problems are really hard and places like the Harvard endowment, other endowments, financial services firms are starting to look at that. I'm on the board of Santander, it's the largest bank in Europe and Santander has an extremely ambitious program of carbon neutrality for its balance sheet. Me and carbon neutrality, in all the companies that it supports through lending. Which is tens of thousands of companies all over the world.
Firms are starting to take this really, really seriously, and regulators are beginning to take it seriously, too. I can tell you from a personal experience of the financial crisis, when regulators start to turn their requirements into capital requirements that directly reduce your returns on equity, everybody starts paying attention to it. This is absolutely coming and will make a big difference. So I'll end by saying I'm an optimist.
My dad lived for part of his life in LA in the '50s, and he said in the '50s, the skies in LA were pretty much black. The prediction, and everybody assumed it was inevitably going to be true, is that the skies would just be even more unbreathable and that would be the permanent state, kind of the “Blade Runner” view of LA. That did not happen, and it didn't happen for a simple reason, which was unleaded gasoline, it made a very, very, very big difference. The problems we're having now are much greater, but our capacity to solve them is also much greater. I think with all of these changes and incentives, demand from investors for sustainability, and a push from the regulators, some climate accords, technological solutions, the ability to measure portfolio and determine its carbon neutrality, when all of these things come together, I am highly confident that we will figure it out.
Gregory Ugwi: Thank you, Marty.
Marty Chavez: Thank you so much, everybody. It was such a pleasure to be with you.