00:01
You are listening to investing matters brought to you in association with London South East. This is the show that provides informative educational and entertaining content from the world of investing. We do not give advice so please do your own research.
00:17 Peter Higgins
Hello, I'm Peter Higgins. Welcome to this very special episode of the Investing Matters Podcast this week, I had the pleasure of speaking with the former CEO of global tech firms, Sage, Microfocus, and Chordiant is also the current chair of Tech Nation, the UK’s leading growth platform for tech scale ups and entrepreneurs. The person in question is the hugely talented serial entrepreneur and investor Stephen Kelly. We ended up enjoying an extended interview. So we decided to split the conversation over two episodes. This is the first part of our conversation. So please enjoy. Welcome, Stephen.
00:57 Stephen Kelly
Great to be here. I've listened to previous podcasts. I'm absolutely delighted to be with you today.
01:03 Peter Higgins
Thank you very much. And it's a delight to have you on, I've watched your journey, your meteoric rise and your continued rise for some time Stephen, so thank you for joining us on this podcast.
01:12 Stephen Kelly
Great stuff. That'd be fun.
01:15 Peter Higgins
I want to start if I may, Stephen, with a quote here, given your journey. So Stephen Hawkins, the famous English theoretical physicist, cosmologist, and author said, “Intelligence is the ability to adapt to change.” Stephen, what are the earliest experiences that very much shaped you and your values?
01:33 Stephen Kelly
Yeah, I guess probably like all of us, growing up, and I came from a pretty hard work in small business background with my parents went to a state school. And so one of the things I really shaped me is kind of leaving my home where a lot of guys, you know, my classmates who are smarter than me, in some ways, went off to kind of work at British Rail in the ticket office or down a customs in Dover, or, you know, behind the counter of Barclays Bank, and they sort of got trapped by the environment and the aspiration level of that peer group.
Fortunately, in some respects, when you look back, I went away, and I was the first in my generation to go to college, I got a full grant, and then really never looked back. And I've been very fortunate back in the 80s, to go to an early stage company Oracle, and spend nine years there, the whole mantra, you know, of companies, and it's very true. When we look fast forward to building value for all stakeholders, you got it, as a company grow fast, or sadly, die slowly. And some of the things that shaped me early on, have stood the test of time.
So the core values, the culture, doing the right thing, being kind to people, respectful, speak truth and power, just have that fantastic energy. And probably the biggest thing to define me, I'll be honest, is hard work. Hard work, my mum used to say hard work, never killed no one, and in my family at the time when I was a teenager, sadly, my father had a nervous breakdown probably had mental health issues, and had to sell the business. So that was a rude awakening. So literally, you know, at the age of 14, I'll be going up to the seafront selling ice creams, I'll be delivering to paper rounds, whatever it took, and we had to that time, pay five Pounds back into the family kitty just to survive.
So we had our very personal kind of cost of living crisis, you know, sell the car, downsize houses, all that sort of stuff. And that was a really kind of visual, rude awakening to the world of life. And it meant I had to grow up really quickly, myself and my brother and sister, we just had to go out and get jobs as well as staying at school to create some income stream for the family to survive. And I've kind of seen the impact of what hard work does or what graft can do.
You know, you could win the lottery, but generally, the people who are very successful, it doesn't happen by accident. There's normally some sort of plan and a hell of a lot of hard work.
04:12 Peter Higgins
Yeah, I agree with you and thank you that response. Now, you mentioned just briefly there, I want to go back a little bit, Stephen,that you and your siblings were the first generation in your family to go to university prior to that time at the University of Bath, study in Business Administration. Awaken Your business appetite?
04:29 Stephen Kelly
Yeah, definitely. Feeling not only that I feel massive impostor syndrome, because, you know, I've sort of never met people from public schools and all that sort of stuff. And there was all these people popping up from Dulwich College and Winchester, and I was in awe of them to be honest with you, at the age of eighteen, but I soon really got the bug, I always loved business.
I love the complexity and the multifaceted nature of back to your question, first of all around the, you know, the intellectual challenge.
But many people can define a great strategy. But it's really the magic happens when you execute that strategy. And we always say in the software world, you know, A class strategy and a B class execution is always inferior to B class strategy and A class execution. But if you get the magic of A class strategy and A class execution, you just unstoppable. And I just got the zen of business, talking both to guys on the course, but also the teaching.
But the nice thing about Bath was it was thin sandwich courses. So we went off to industry went off to companies at the time, BP, and again, like the big city, just kind of bright lights and working with these incredible people in industry, you learn really, really quickly, again, actually, the kindness people showed me and I think this is the case still today, in terms of mentoring, coaching, and really kind of growing the next generation of entrepreneurs who stood with me and stood the test of time. And now I'm very lucky that I can give back in that way, too.
06:06 Peter Higgins
Yeah, I was going to touch on that, because I felt a sense that since you were quite young, going to school, going to the university, that there's a sense of you, purposely throughout all the things that you've done, about giving back to support, essentially, state school children, minority and disadvantaged groups, I wanted to see if we could do that right now just share some of the work that you've done regarding that over the years?
06:27 Stephen Kelly
Yes, been important to me and actually great friend, a guy called Dr. Steve Garnett, who was chair of Salesforce and came from a similar background to me, it came from a sort of council house in Liverpool, the interesting thing is just, we definitely just keep our feet on the ground, you never forget where you come from. And you just kind of bless every day that you are given the opportunity that we have, but that fills us with a great sense of responsibility to make a difference to the next generation and kind of help kids similar to us who have disadvantages. And it could be around ethnicity, it could be gender, you know, because the barriers are very real, whether it's conscious bias or unconscious bias.
And therefore what I've done throughout my career, particularly now is actually mentor and coach, particularly female entrepreneurs, black founders, and spend time with them. And obviously, you know, that's all pro bono. And it's just a joy to see them smashing through ceilings and achieving probably sometimes what they didn't think was possible.
So yes, huge reward. I think it's really important, because otherwise it won't happen. We'll just be in a self-perpetuating world where the elite just dominate the airways, and people with huge talent, absolute brilliant intellect, great entrepreneurs will be deprived of the opportunity.
07:51 Peter Higgins
You know, I love that you're doing that piece of work, and I would you touched on their unconscious bias. And when you finished uni, you apply for numerous graduate jobs were turned down for numerous times, and then eventually got a job with ICL, and was accepted on their graduate programme. So that must have been an absolute catalyst for you going forward. Tell us a little bit about that, please, Stephen?
08:13 Stephen Kelly
Yeah. And you know, in those days, it was kind of the early 80s. So you know, mass unemployment, it was kind of a restructuring of the economy, with the decimation of the steelworks, the coal mines, sort of first generation industrial revolution that created a lot of the wealth for Britain, massive structural change, and I applied like those guys from the course.
But tonnes of jobs. One of my colleagues actually applied for 249 jobs in those days, he had to handwrite applications, and was rejected by all of them, then actually, ironically, got a job in Nomura, the Japanese bank and went off and was hugely successful, became bilingual in Japanese. But for me, again, you know, it's good, it's good to deal with rejection. And also to think about, you know, put yourself in the shoes of that great word of empathy.
Put yourself in the shoes of the people who are looking at you, and thinking about what their needs are, what their wants are. And I was very fortunate that eventually I'm going to get a job at ICL on their grad programme.
Now, the thing that really gave me a gift was in those days, that companies like, obviously the Mars the IBM’s, ICL’s invested massively in graduates that, you know, it's almost like the university life wrapped up into we went away for a 12 week residential and hotel, and we were sort of trained in all the core skills of business, the platform skills, like presentation skills, communication skills, how to do business planning, budgeting, as well as technology skills.
So that was just an incredible sort of finishing school in that graduate programme. And I think it's a kind of a shame companies seem to have lost that in terms of, you know, when you come out of college at 21, it really is a fantastic opportunity if you've got to work with the best people in terms of letting you understand how to build a business plan, how to build marketing plan, product plans, and also have the highest levels of behaviours and effective behaviours to get the job done, because it's all back to not only have the plan, but it's also about the execution that matters. And the great companies I've worked for were typically companies that had awesome execution. And I feel, you know, nice British company at the time probably got overtaken by the competition, particularly from the US.
But you know, in terms of what it gave me, in terms of a platform or core skills, and competencies, you know, I've never, never forgotten that. And even today, why is almost 40 years later, they've helped me a great stead, just around how to build great companies, how to be part of the team, and how to contribute in the most effective way.
10:58 Peter Higgins
Brilliant, I love that. Now, around three years later, in 1988, you began working in the public sector sales for a little known early stage company with only 12 million pounds in revenue in the UK, little company called Oracle, if I recall, please, can you share with us how this opportunities came about? And why at the time, people around you felt this was not the best opportunity for you, Stephen?
11:20 Stephen Kelly
Yeah, it's fascinating. Now, I was actually at an investor lunch with a lot of the sort of founding team, European team of Oracle yesterday. And, you know, the friendships actually have lasted all that time, and a real bond of what we achieved together. But also, you know, the friendships that last have the thrived over, they were there.
But back then was just an unknown company selling this thing called a relational database that no one understood. And very early stage, yeah, as you rightly say, but it was a company with tremendous ambition, and a disruption agenda about how to create a new paradigm that was very important to, you know, things that we just take for granted now, like the internet, and devices, and all those sort of things, because you actually add to this all about data. And we all consume massive amounts of data. And this was a great way to organise data very differently. So I joined that sort of starting early stage in Europe at the time. And I remember, you know, my friends, actually, parents, I was completely bonkers. Because no one will remember who's sort of less than 40. But at the time in the 80s, there was some technologies called Teletext. They had your TV, and it streamed this news feed. And there was only two sort of dominant players in the UK, Ceefax and then Oracle and ITV and they all thought I was kind of going to work for the kind of Ceefax equivalent for the ITV.
So they, you know, they said, Why would you do that, and then I told him, actually, it's a software company. And they thought I was even madder about looking back at that, you know, again, Oracle does it in those days, there was twelve years, eleven out of those twelve years at triple digit growth. During my tenure there nine years, most years, we kind of delivered in our division, triple digit growth, that's like 100%, compound growth. And that creates, you know, it is a bit of a roller coaster, obviously, and your feet hardly touch the ground. However, it's a great learning culture, you're working with the smartest and the best people, and also a really strong culture and customer obsession, doing the right thing. So you know, that sort of taught me there's a couple of things, if there's any kind of want to be CEOs out there, and entrepreneurs and founders, that is kind of, you know, you look at all the complexity of business, but it comes back to real simplicity, there's kind of two lenses that really, really matter. There's lots of lenses, but two a paramount.
One is obviously innovation around customer success and customer obsession, and build that into the culture of the company. So if you love your customers, and you actually delight them, and they become raving fans and advocates, you've got a great business.
But how you do that is going to hire the best people and build the best culture in the team and then directs all your people to add in really great value for your customers. And you do that it's almost two sides of the perfect coin, harness the best people, build a great culture, build that team that absolutely excels and has huge aspiration, and then connect those people with customers and obviously innovate from brilliant products, you got a great business and not everything looks after itself.
But actually there's a great foundation to build a good business. And I learned that back at Oracle. You know, I did four or five different jobs there European alliances built really great partnerships around public sector for a while. And it was really a showcase where I work with brilliant people who become friends for life. And now we actually co invest. I mentioned a couple of people, other people like Jeff Squire, a lot of these guys do a huge amount of philanthropic work for the next generation, for minorities, as well as really wise investments to help the next generation of companies grow in the UK.
14:59 Peter Higgins
Brilliant. I love that you've cottoned on to the importance from ICL and also then Oracle about the customer, the customer, the customer and building a culture there for everybody to actually thrive, which is really important. Now, I'm going to ask an ironic question here, if I may. Do you recall when you were leaving Oracle, what the actual UK sales were around approximation going from 12?
15:19 Stephen Kelly
Yeah, actually, I remember the worldwide sales was over well over a billion. And I remember, the charts, the visuals like 12? No it was 25 million, 48 million.
So it was literally almost doubling every year. It was almost like the M25. You add another layer and you double the volume of the traffic. And we had a really good what actually I should say, as well, Oracle kind of it was the finishing school on, you know, the teaching hospital of how to build global software companies. And obviously, it's no accident that people like Marc Benioff, who founded Salesforce, Tom Siebel, who founded Siebel Systems, Polly Sanders, loads of people that I work with, who have gone on to be hugely successful, the guys who started PeopleSoft, all came from that kind of score, that caliber have the elite core at Oracle, and all kind of understood that, you know, not revenue kills or evils. But ultimately it does. If you've got growth, then it means you can invest more in the product in the business, you can hire the best people now outgun your competitors.
And really, it creates a virtuous circle a flywheel of success. And those people, you know, have gone on to build huge, multi multi billion dollar companies around the world, but it did teach me kind of a playbooks, even down to the granular level of what great looks like in terms of a sales compensation plan, or business plans, or an HR plan, or a product plan or a marketing launch plan or an event plan to our big conference, whatever it is, yeah, that was almost a bit like there's Blue Peter style, here's one we did earlier. And it worked in the US. And ironically, back in the 80s, when we used to fly into France or Germany, I'm sure in the very early days back, then they'd be pretty pleased that either these Americans or these folks got back on the plane and left and to run their own business. And then we definitely heard in those days, well, you know, it's very interesting, what you're saying it's very American, France is different, or Spain is different.
When you're building global software companies, you know, 90% of what you're doing works everywhere in the world, obviously, you have to be sensitive to culture, language, traditions, and sensitive to those. But effectively, you can build these level playbooks and global product launches.
Whereas when we went there, you know, in reality, everybody did it differently. Everything was fragmented, but everything became the same. And that was the time when, you know, global software companies really had their genesis and their platform. And it allowed companies like Apple and Google and all these companies to then really accelerate the globalisation of technology. And when I came back to the UK as CEO, people like Micro Focus, and Sage, ironically, it was going back in time, or it was almost like back in Back to The Future and time and going back to the 80s. Because when I went to those companies, every country did it differently, every country, how their country MD and it was totally autonomous.
There was no consistency in terms of product planning customer or even culture, or even brand. And so just meant huge proliferation, huge fragmentation and load of wasted costs, really inefficient operations. And it required a root and branch review. And then to implement I hate to call it like the US model, but it's just the successful playbooks of you know what I learned way back at Oracle that really stand most group companies in good stead today.
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19:08 Peter Higgins
Yeah, I'm going to talk a little bit more about Micro Focus and Sage a bit later on. But I wanted to touch on this a little bit here in around 1997 Stephen, you've had a really fantastic run and success at Oracle and you joined the founding team at Chordiant where it was your first CEO role. Please share with us how that came about? Obviously, you're doing all this work with Oracle, you're going across the world, lots of people looking at it thinking this guy's going places. How did that come about? And can you tell us a little bit about the successful listing as well, that happened a few years later on the NASDAQ for Chordiant?
19:40 Stephen Kelly
Yeah, so what we did was I got to I got a call from the chairperson Carol Realini at Chordiant. And it was a really kind of innovative company. Spark of disruption was wanting to change the world for the whole proposition and what Chordiant did was make financial services consumers and customers wellbeing much more improved.
So if you remember in those days, you know, you'd have loads of credit cards probably. And you'd have to call a different 1800 number for each your credit card providers, even if it was the same company, the people you talk to, in one call centre wouldn't have a clue about you in the other and you could be a city customer 30 years and you're talking to a customer services rep doesn't know anything about your history with the bank. And that's no criticism of the customer services rep.
That just means haven’t got the data in front of them. And really also things like what's the best process to take you through if he lost his credit card or whatever the process element is.
So Chordiant had a vision to give like multi channel single view of the customer to make the world of the customer much better. And that's still relevant today in fintechs, interested in that.
So then early stage Fintech before we knew what the word meant, and I took the fundamentals of what we took out of Oracle is, you know, the vision of what we wanted to achieve. And the ambition, we had translated that to a set of strategies that we thought would work, build the plan around that using sort of end result planning techniques about what we wanted to do. But that was 1997.
We said, what do we want to do? And what do we want to be proud of by the year 2000, that was kind of quite a galvanising rallying cry, and we got a whole team in that we've got customers involved in that as well. And that actually defined like a three year plan that made a one year plan and made a quarterly plan. And then we define what sort of culture we wanted in terms of innovation, customer obsession, all those sorts of things, just three or four things that matter. And then we went about kind of execute the plan. And we had huge success. So we become the market leader in financial services. And we won prestigious banks, you know, like Barclays, Lloyds TSB over here, Direct Line in the US, some of the biggest MetLife USAA, which is probably the best insurance company in the world, serve veterans in the USA out of San Antonio.
So we got them the highest quality customers really connected on this vision to improve the lives of their consumers, and serve them in a radically different way in a joined up way that could really serve the purpose of the consumers, rather than these what was product based businesses in the bank. And we went from like naught to $100 million of revenue in four years. So it's just like explosive. And actually, you know, interesting thing, Peter, in those days, we didn't worry about we just worried about doing the right things for the business, doing the right things for the customer, doing the right things in terms of hitting the plans and exceeding them doing the right things in terms of product innovation, looking after our people. And the valuation we always thought would look after itself, because you'll find the right level. And what I've found in the last three or four years, I'll be honest, is probably a over fascination with valuation.
So obviously, the term we have now is unicorns and decacorns, unicorn is a company worth a billion dollars. Again, we didn't even know what that term meant back then. But we got in back into kind of just before the crash, actually, we went out to the public markets 22,000 and listed on the NASDAQ fantastic IPO big IPO roadshow, we did about 176 presentations to potential investors in New York, Boston, London, Amsterdam, and we got a valuation of 2 billion on day one of the IPO. So we're a unicorn Fintech really hot company, super high growth company, sort of triple digit growth company. And again, you know, that sort of taught me, Peter. And the thing that drives me in some ways, is just the curiosity of whether these models work and these playbooks work. You know, in that case, from a big company, which are when I left Oracle, it was, but we obviously started it from a very small company, but then looking at a real startup or founding team, and whether the same models work and they worked beautifully. And we delivered huge success customers at the centre of it.
You know, we used to have executive customer advisory boards, we used to have customers in the room on product management meetings. So not only was it a lot of innovation, but it was really centred around serving the customer. And these guys, you know, I can't make good friend still today, some of the customers both from the US and over in Europe and Asia, some of the biggest banks in the world, biggest insurance companies in the world, really wanting to invest in a different paradigm about the serve customers. And we've seen that sort of carry on in the Fintech revolution that's going on today. But I think what it taught me was absolutely the playbooks work incredibly well. Secondly, what it taught me was that it's great to be part of the founding team. I've never done that before working living in the Valley with the best people you know, companies like General Atlantic as investors, Foundation Capital, Battery Ventures, you know, these literally rainmakers from the Valley that would be sitting at the other final thing that you are so lucky to have an incredible board. Probably the best board I've ever sat on.
As a CEO, well, absolutely by a country mile and we have people like George Perez, who was the first CFO of Google, on our board we had Katherine Gould from Foundation Capital and we used to hang out with the Google guys in the early days in 97/98 and it's just amazing go see at that time, it's probably fair to say they sort of had a dream and aspiration, but they didn't necessarily have all the pieces of the puzzle on the pathway to success.
And they found that through iterate, great businesses tend to do this, you sort of have a vision of the end goal and you mobilise all the all the team to actually deliver that and put customers at the heart of the business.
But then obviously, you iterate that’s the element of a great culture, and you learn on the way, and you lose this kind of lesson to learn to build great process systems, and innovation around the heart of the company that allows you ultimately to become the market leader. And the difference I found even now, where US companies were always in the board, just the whole conversation was how are we going to become the global market leader. And in our sector, in financial services, which retail banking insurance, we became the global market leader, we had 12 of the top financial institutions as customers, and absolutely kind of ripped away from any potential competition, which was old fashioned technology, legacy technology. And we set up a great platform, great culture, and a lot of fun.
Again, I'm really pleased to see folks who have gone on to do amazing things who are part of the Chordiant school, and they've gone off to be CEOs and their own companies and shooting successful careers. And I think, you know, as a leader, there's a couple of things.
One is, it's an absolute joy, to be able to say every company you joined, you left in much better shape than when you joined it.
And you've created unnecessary legacy. But everything when you look to how customers were how product innovation was how people were the culture was, how the performance was how the growth was everything.
In terms of material factors, it was much better than when you found it. And the second thing is, it's really rewarding when you see the people who worked within your company go off to pursue their own careers and become chief executives and chairs, wildly successful in their own rights. And just a little bit of that's probably down to what they did when they were part of the team.
27:27 Peter Higgins
Brilliant. I love that response. Thank you so much, Steven. Now, I want to go back just a tad, please, please share with us now listeners, your recollection and experience of the dotcom bubble and the crash.
Because obviously, you talked about Chordiant and having this meteoric rise, but it's also almost met with the other side of that, which everyone experienced during the 2000s.
27:48 Stephen Kelly
Yeah, it was amazing. So and it happened only months after our IPO. So you go from giddy heights and altitude sickness and in the Valley.
Certainly, you know, it did get irrational, but people saw you know dotcom companies almost invincible, and the fad became mainstream. However, you know, obviously, it's completely mad for companies to be like, valued at a billion dollars, just on the basis of a business plan and the credibility of the management team just doesn't kind of make sense.
You want the fundamentals of customers and revenue and products, you know, that make a great business.
But I remember, you know, it was a big shock for the valley. But it also is testament to how quickly the American culture kind of resets itself.
So you know, back in 2000/2001, we'd go from a booming economy where you couldn't hire people for love nor money to just a massive collapse were like a million and it was about a million unemployed within nine months, massive risk reduction forces, as we call them, at the time, layoffs, loads of lessons learned from that. So I drive down from the city, San Francisco, back to sort of Palo Alto in Cupertino down either the 101 or 280.
And with the either side of the freeway, these what we called see through offices, where literally all this real estate had been built a year before had been jammed full because you couldn't get real estate and it was ridiculous commercial rental value. It just collapsed.
It went from like whatever it was $50 to $2 per square foot. But more importantly, literally a million people have gone home. And I remember the rate of unemployment went up from like 2% to 11%, in nine months, and folks had gone back to the Midwest folks had gone back to Asia, literally to kind of reset their careers and go in search of work. So that's kind of one thing I've realised about the American culture people go where wherever the work is today.
it's great to see mass migration, because we at the moment, the UK is kind of at the moment on its knees to hire people, whether you're in the hospitality parts, restaurants, you know, I think it was the case only recently the whole floor of the Ritz was closed because they can’t get cleaner employees and in technology. You know, we’re dying for like managers and software developers.
So migration of talent is such an important strategy for any country. And we saw that and yeah, it's no accident, the US is the greatest economy in the world at the moment, it's been really been forged around migration. And the talent we had. And also the culture we had in the Valley was, you know, very, very, very much, probably more very consistent, very aligned, multicultural, cosmopolitan, and a real buzz and sense of energy. And then we go from, you know, a massive shock from dotcom, where a lot of companies collapse disappeared, we ran out of money and went out of business. Now, what I've said for us as well, we actually kind of tailed off on the growth, and we weren't.
So two things lessons learned for me is what during that time is we actually kind of missed a quarter. And I've probably done as a CEO of a public company, almost 50 quarters. And there's a couple that we miss, you know, for technology companies, I think the statistic was, normally technology companies missed one in six quarters. So we've done pretty well.
However, the sickness you feel in your gut, when you miss a quarter as a CEO is palpable, there's loads of things I share with you, first of all the internal project to with our colleagues.
So when we had to sadly lay off some of our colleagues that we'd kind of projected the business plan for triple digit growth. And that hadn't materialised, because some of the customer spending slowed down because of recession. What it meant was, we need to correct the cost base. And we did that literally really, really quickly.
So we read that cost base, but also what is really important if you're consistent with the culture, or the way you do it about compassion and kindness to colleagues. So actually, at that time, we did a reduction in force and great guy, Jim Hancock, who ran part of the engineering team left as part of that process. And he said to me, subsequently, about a year later, he said, probably the way you did that, as a company was compassionate and caring as you possibly could have done, and we actually funded a leaving party for them all and he had held in his yard, which is equivalent to back garden in the UK terminology. And, you know, we tried to look after people as best as we could.
The other thing that was really important, you know, this message, we're all in it together. During that time, myself and the executive team talk three salary cuts. So initially, we took 20%, cut, then another 10%. And then so we work in a salary level, we're working harder than whatever done, but we will work in a massively reduced salary, because we want to have the integrity with our colleagues to say, look, you know, we've got no crystal ball, we don't know what the advance will improve or get worse, though, we've taken all the actions that we think are necessary, but also, you know, we're in this together.
This is painful for all of us. It's horrible to see colleagues that we love going. But it's important for you to know that we've taken salary cuts and actually taken some of the pain too.
So I think that's important. I think that's the real essence of leadership and integrity and looking people in the eye and saying, yes, generally, we're all in this together. The other thing I'd say from an investor point of view, I know a lot of investors out there, everybody says the investors totally rational data driven this couple of things, I'll tell you about that in time, there was a survey done. And if this is still the case, this is 20 years ago, of investors fund managers in the US, and they did a load at a university, it was Harvard or something like that.
They did loads of analysis of investor decisions on the fund managers buying stocks, individual stocks, stock picking, and they found that obviously, they thought it would all be objective data, data around market opportunity, product innovation, competitors, growth, free cash flow, all the things you care about management, but actually found 70% of the buying decisions are based on both the confidence and the body language of the CFO and the CEO.
So wow. You know, in those days, the roadshow, it was like Groundhog Day, every quarter, we get on a plane, you know, we go to Boston, New York, Philly, fly to London, maybe once a year go Amsterdam, Milan, Paris, Chicago, and then you do all these kind of banker conferences, Ritz Carlton down in Palo Alto. And it was we probably as a CEO would probably spend 30-40% of our time out with investors.
So what we thought actually another factor, and my chairman Sam Spadafora who was probably the best chairman, I've had fabulous, fabulous human being but also a great and work directly with Scott McNealy, albeit, building some to be a great technology company seminar talks and there's a lot of companies in the dotcom crash that disappeared from the radar investors and stopped doing roadshow and I used to on the call to say, look, guys, we've just got to get our heads down.
We've got to get through this. We don't know what the environment is going to bring in changes but we're doing all the right things to the business.
But we're still going to come out to your investors and talk to you and make sure you know, we're here. And we're really committed.
So we worked harder than we ever worked during that period that couple of years. But we also went on the road, we went to all our big investors, we did face to face meetings with them. And Sam used to say, you know, I think it's easy to be happy in the good times, but it's much more important to be there in the bad times, and be shoulder to shoulder with investors.
You know, I know, on this, I'm sure a lot of investors know this investors, the most rational people, but boy oh boy, investors get incredibly emotional when things go wrong. And if they look at the screen, it's all red.
Even for seasoned investors, your heart sinks. And it's important to know that the companies you bet and invested in and you went to your portfolio managers and back there for you, and making sure that you are one of the key stakeholders, and they did all the right things for the business.
So fascinating insights. And with all these things be that you got to go through bad times to really not only appreciate the good times, but to understand even more than ever, you got to keep your feet on the ground and never get ahead of yourself, you never believe you're on PR, you just always think what do we do, and then almost that relentless, continuous improvement, because there's always even in the greatest companies in the world, there's always things that they can do better. And there's always a new competitor out there kind of yapping at their ankles, to make them grow faster. And that competition that we found after the dotcom crash actually was really healthy to drive even more innovations. And, you know, I know this in those sessions, some of the greatest companies have been bought. So Microsoft back in the 70s, after the oil crisis, then some of the greatest Uber coming out of the credit crunch.
I'm not suggesting they're a great company, but they're disruptive and innovative. And so that innovation is really kind of being a kind of keynote, to come out of some of the biggest recessions in that period of time with the dotcom crash and seeing all those things for offices and the despondency is kind of really a thing that I kept find a bit of a story is actually probably a year before the dotcom crash, I hired an engineer, and she would come into my office and say, actually, I want to do a salary sacrifice, because I want to have all my compensation in stock, because everybody kind of, you know, could see their way to be millionaires, now, what you want to do is have salary, you want to pay your mortgage, you know, look after your family, all that sort of stuff.
So the irrational behaviour from people as well saying everything's stock doesn't make sense. And then, you know, ironically, six months after the dotcom crash, I had a lot of colleagues come to me and say, oh, we don't want the stock, can we have a pay rise.
So I guess as CEO, you can't see around corners, but and you never pretend you can. But you just want to keep people balanced and sensible, and keep everybody's feet on the ground and look after their well-being obviously from point of view of getting the best out of them, but also making sure they look after themselves.
38:37 Peter Higgins
The continuation throughout all the conversation I have with you so far. And there's a phrase I've seen you use in an article I've read, and it's about your passion for ethical capitalism. Can we just talk about that a little bit? Not only are you taking everybody with you and saying you're going to do something and actually following through on it?
38:53 Stephen Kelly
Yeah, I believe and I think there's a few there's a couple of things to say. One is, you know, when you go to the States for over 10 years, you get forgotten about in the UK, it may not be the case now with social media, but, you know, you sort of get forgotten about but also the second thing so you have to when you come back to the UK sort of reestablish it's almost like, I guess in the old days when you know expats used to go out to open the office in Singapore, they get forgotten about and it's you have to start all over again when you come back to the UK.
But the reason why I'm telling you that is the mainstream, I guess narrative around business, particularly at the moment is probably quite caustic. And all that, you know, energy bosses, fat cats, but I genuinely believe love the business leaders I've met a very compassionate kind and want to make a big difference to the communities they serve.
So there's two things I'd say this is important to your investors as well, me as the CEO, I didn't obsess every day about profitability or maximising the value of the company and never did that. What I always thought about is how in the long term, can we build short term plans to become the market leader, but to do all the things that really matter for all of our stakeholders, so that does mean really engaged colleagues and employees building amazing product and delighting customers, that does mean customers that become raving fans and advocates for your company and recommend us to other kind of really important prospective buyers of your technology.
That means that you have to look after your partners and your suppliers, you know, higher ethically, and you have to pay out within 30 days, all these things were embedded in the policies of the company. So rapid payment, to do the right thing for everyone to your stakeholders. And one of the key stakeholders, obviously is your investors, the promoter growth capital for your success.
But the thing that investors can sleep well at night is if you're invested in companies where the CEO and the board obsessing about doing the right things in the business, put in and hiring the best people and unleashing their energies to delight customers. And then obviously, having a governance and high integrity environment that the report and the transparency is second to none, then actually, you've got fabulous business, and they will be the best returning companies in your portfolio. But be assured that the chief executives is not obsessing about the stock price.
I never, we never the stock price looks after itself. If we deliver fabulous results, and we're delivering triple digit growth every year, then actually, probably the share price over the long term will be doing doubling every year. And you know, I learned that back at Oracle where literally the stock price doubled every year. And we did a stock split pretty much every one to two for one stock split every year. I never paid a dividend because we thought actually the investors would much prefer us to do reinvestment of every pound of profit back into the business further growth.
Because if you've got a management team with a plan to be market leader, and the energies and the competence and capability to execute again, then you want to backup and we used to send the US it's an interesting that it's very counterintuitive to the UK picture. When you start paying dividends and you do share buybacks we used to call that window dressing because basically, it is absolutely the reality that the management teams run out of ideas about growth. If you've got brilliant ideas and growth, overseas expansion, new product development, you want every bit of profitability going back into investing in the business for growth, and then in the long term, you will be absolutely providing much more superior returns to your investors.
So the number one philosophy is you have to think of all stakeholders and you build the community included and we talked about it but the community you serve felt lucky and the visualisation of this.
When I joined a company called Sage, it was a market leader in the small and medium business accounting paid about 70% of employees in the UK and the private sector and a real kind of bedrock of the North East of England employing 2000 People in in Newcastle, I realised that was a huge opportunity to get the energies of our people bought in 14,000/15,000 people really mobilised to support communities they serve.
So I established the Sage Foundation had a simple sort of tagline of two plus two plus two. 2% of colleagues time will be volunteer and paid for by the company 2% of free cash flows notionally into charitable foundation support causes for women and youth and two technology licences provided for not for profits for free and charities so that they can run their back office really efficiently. And all the funds coming in actually get donated and executed to call this they care about whether it's you know, kids in Africa, whether it's domestic violence for women, whatever it is, that they could run really, really efficiently.
So this Sage Foundation, I think there's a lot of cynicism in the UK when I introduced this, and there was a lot of pushback, I'll be honest from some of the finance teams, you know, substraction it won't pay for itself, you know, but literally three years later, it changed the company, it really became the beating heart of the company.
It was a massive fact I used to do sort of meetings, fireside chats for new joiners, and ask them, you know, what was the factors behind you joining sage, and about 40% of the people around the room who joined sage last three months, particularly the Gen Z and millennials said, you know, it's the Sage Foundation.
There's very few companies in the UK that really stand out and clearly care for their communities and make a difference for the wider population. So I thought you know, Peter, it's a long answer. What struck me when I was Chief Operating Officer of the UK Government, and that was in the time of austerity and deficit reduction. We realise that actually, governments and it's even worse now, governments haven't really got the firepower without taking massive debt to make a huge difference in communities. Now, we want government to do that. And in a democracy, you vote for the party that you think will do the best job hopefully for the wider population in the country rather than your own selfish interest. Not always the case, but companies, we are the wealth creators, we are the people who are creating all the opportunity exports, the growth. And I believe it's really fundamental. We connect those companies within their communities and make a massive difference.
So we are so proud and emotionally really moved. When I saw the brilliant work in the Sage Foundation, we did similar in Micro Focus, and we did similar at Chordiant where we actually, you know, an example in Atlanta 12,00 people working in Atlanta, but massive, still segregation, massive disadvantage for brilliant black kids. So we did initiative with Georgia Tech, and we did initiatives where we made a huge difference to that community. A lot of our people when volunteering in food banks down in South Africa, it was just amazing to see colleagues about 60 colleagues go and paint schools in Kliptown in Soweto, and also fit them out with laptops and technology and teaching assistants to help these amazing line between six and ten year old black kids who have just inspirational and just given the opportunity, I think to Nelson Mandela, who said it, you know, education is the best way out of poverty and the way to opportunity, or something similar, paraphrased, and I apologise for that. But you know, when you see companies at the heart of their community, it makes a massive difference. And the magic happens. And it comes back to what I said before is this holistic plan. you know, we used to have customers and partners come in on our volunteering days, and obviously I went on them, whether it's picking up litter in parks or helping out in terms of the floods in Northumbria and helping old people move their sofas up to the top floor, whatever it was, there was always an opportunity.
And I think Peter now, particularly with the cost of living crisis, you know, we've we've probably got going up from 2 million to 5 million people are living on the breadline in the UK, I believe personally, you probably think I'm crazy, but I think are safe roof over everybody's head in a civilised country should be a basic human right.
So I get deeply saddened when I go back to London now, when we actually fixed homelessness in the first lockdown, not for the long term, not sustainably. But you know, we actually taught those poor people who are there for the grace of God, it could be me and you with a few bad twists and turns and different situations in our lives.
You know, no, no one's in more than an invincible. And I just think companies are at the heart of that integrity, where we create all the wealth and the opportunity, and we should share that with the broader community.
Now, if there's any investors out there saying, actually, it's a distraction, it's not called the business, you should give it in greater profitability to me as an investor, I just say I refute that, totally. And when you look at the greatest companies in the world, I'll give you an example.
Salesforce started by Marc Benioff 22 years ago, this year, probably a $30 billion revenue company totally transformed the category around customer management. But Mark has done huge amounts to try and solve the homelessness in San Francisco, Mark created a Salesforce Foundation that's given probably tens and hundreds of millions of dollars to great causes. And every one of his colleagues around the world, he must either employ 50- 60,000 people get at least five days volunteering, where they make a massive difference that community, and is probably one of the most best performing US public companies there is out there. So all these things go together, it's never either or, should I do the right thing?
Or should I just pump up quarterly profits? Now, you can actually do both. But think of the long term, build into your culture, delight customers, engage colleagues make a difference in the community. And actually, in the long term, you build a hugely valuable company that generates massive returns for investors.
Peter Higgins 49:06
So that was part one of our conversation with Stephen Kelly. Don't forget to tune in next week, for the second part where we continue our discussions and Stephen shares more valuable leadership and Investing Insights. I hope you enjoyed this podcast. We look forward to hearing your feedback, please subscribe to your platform of choice. And please do follow the Investing Matters account on Twitter. Thank you.
LSE: 49:39
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