What it takes to build an institution
IN 1970, ROBERT JAMES asked his 27-year-old son, Thomas A. James, to take over as chief executive of the advisory firm that he had started eight years earlier. Armed with a degree from Harvard Business School, where he graduated at the top of his class, the younger Mr. James, who also played guitar in a rock band that he had formed in college, stepped willingly into the role of CEO.
It was a position that he would occupy for the next 40 years.
Over that time, Mr. James transformed what is now Raymond James Financial Inc. from a backwater investment firm with 225 employees and $3.3 million in revenue into a publicly traded juggernaut with more than 2,500 offices worldwide, 10,400 employees, revenue of $3.8 billion and a market capitalization of $5.1 billion.
In May 2010, he relinquished his role as CEO to Paul Reilly, who had served on the firm's board since 2005 and was executive chairman of Korn/Ferry International. But Mr. James, an avid art collector and tennis player, remains actively involved in the firm's day-to-day operations as its executive chairman.
FG: Your father made you chief executive of Raymond James at 27. Any advice for bringing children into the business?
TJ: I'm kind of a Warren Buffett follower in this regard. I believe you support your kids in getting into business, but you don't give them a lot of money. You don't want money to deter their interest in building things and succeeding on their own.
FG: Did your degree from Harvard Business School adequately prepare you for the job?
TJ: I hate to say this, but the typical Harvard Business School graduate is a combination of raw intellect and a lot of idealism. Academic learning falls far short of what's necessary to prepare someone for leadership and business management. I started out with that naiveté.
FG: That said, early on, you focused on hiring graduates from Harvard and other top business schools, right?
TJ: In 1969, I started to recruit from the best schools in the country. I always joke that we didn't know the wealthy families in Tampa, so we couldn't hire their kids, and that was good because we went and hired the smartest kids we could find, and then we trained them in our way of doing business. So in 1969, I hired five MBAs from Harvard.
FG: What were you trying to bring into the firm back then?
TJ: Brain power. I wanted the smartest raw talent we could find. Since I was a product of that environment, I knew you could take one of these young people, teach them the basics of the business and throw "em in the pool.
FG: How did the experience of steering the firm through the economic downturn in the early 1970s — particularly 1973 and 1974 — influence your leadership style?
TJ: That whole period was a very painful experience for me. We had to shut some of the offices we had opened, and commissions for some of my salespeople dropped 80%. I learned that as a leader, you have to have a little humility. I also learned that I really didn't have control over all that I thought I had.
FG: Did anything good come out of it?
TJ: I believe that bad times create a lot of opportunities, and you have to be prepared to take advantage of them. I think we did that in 2008 and 2009. How we handled the recent downturn was largely as a result of the lessons we learned in 1973-74.
FG: Tell me one of those lessons.
TJ: Never enter a situation like that without enough capital.
FG: How do you motivate the people around you?
TJ: I used to be a rock musician. I get up in front of a group, and I want to entertain people. I want to captivate the audience. I want the audience to feel the excitement and enthusiasm, and feel like they are part of the organization. Not every leader can do that. But I will tell you that you are a much more effective leader if you can.
FG: How do you evaluate whether a senior executive is right for the job?
TJ: First, you look at anything that gives you an indication of their competency and capability. You look for people that excelled in academics and have a high IQ. They should also have excelled in activities outside of school. They should be competitive and, yet, balanced. They need to understand the importance of ethics.
FG: What is your secret for conducting a good interview?
TJ: I like to ask a lot of open-ended questions.
FG: Will you give me an example?
TJ: I ask: “What's the hardest decision you ever made?”
FG: Any others?
TJ: “What's the thing in your life that influenced you the most?” and, “What are you most proud of?” “Who has influenced you, and why has that been important?”
FG: Any other interview techniques that you care to pass on?
TJ: I also ask questions that will give me people to go to for references. I ask where they worked in the summers or who their favorite professor was in school. And then you have to be relentless about asking those people about the candidate's weaknesses. You'd be amazed what you find out with really good questioning.
FG: What are your own weaknesses as a leader?
TJ: I have always focused on succession — but did I focus enough on it? Did I really force them to build in the talent sometimes? Did I cross-train enough? That's always hard in organizations. It sounds easy. I've done some of that, but I haven't done as much as I should do. I haven't done enough of that cross-training and really moving people. -
FG: What do you want your legacy to be?
TJ: I want to be known as an institution builder. I always wanted Raymond James to be an institution that survives. Not a lot of businesses survive their founder or owner.
FG: Speaking of succession, you appointed a new CEO in 2010 and yet you are still in a leadership role here at the company. Why?
TJ: It's got to be hard for Paul [Reilly]. I mean, he is replacing a CEO who had been here for 40 years, and that CEO is still hanging around. I've had other CEOs tell me not to stay on the board. They say, “It's going to kill you. You're not going to be able to do it.”
FG: Why do it?
TJ: Look, I'm still the largest shareholder. I've got a lot of money in this company, and I have a long-term interest in building a great institution. I want to continue to do that.
FG: How is Mr. Reilly different from you as a leader?
TJ: He's more of a participatory manager than I am, and that's fine. It just takes a lot of time. When you run a $4.5 billion organization, you have got to make sure you are exposed to all these people enough and that you are really moving on the issues that are important.
FG: How much of a role does luck play in achieving success?
TJ: Luck comes to he who is there, right? So if you have a floor man in a branch, and he's working hard and getting in early and leaving late, sooner or later, somebody is going to walk in that door and that represents a big sale. That's a combination of being prepared and having the skill to deal with the opportunity when it arises. But it also involves luck.
FG: What is your advice for would-be entrepreneurs?
TJ: You have got to establish a planning environment and performance evaluation models. It takes a lot of time, and you need to write it all down. Most managers don't do this, even in some of the best corporations in the country, and it's a mistake. You need to do that so you can hold people accountable.
FG: What about accountability?
TJ: If you have a midyear review, you've got to be able to go back and read everything that happened at the annual review and look at whether they accomplished their goals and objectives.
FG: How did it work between you and your father when he handed you the reins?
TJ: He simply said, “I want you to be the CEO of the company, and you know, I'm here to give advice and be involved, but I want you to do it.” We were very close. Actually, he was more like my consigliere.
FG: What would you say to a newly hired business school graduate starting at the firm today?
TJ: When you're a newly hired business school graduate, you shouldn't focus on being here at 10 p.m. because someone is going to see you working in the office. You should be enjoying your family. You should be involved in activities outside the firm. That doesn't mean you don't work hard. But there's got to be balance.