Nasdaq’s Adena Friedman: “Capital is Part of the Cure.”
August 11, 2020
Andrew Schwartz: You're listening to The Reopening. The podcast that asks, "How will America work through the COVID-19 pandemic? How will we innovate, and how will it change our global economy?" Each week we invite top business leaders to share their insights on the road to economic revival here at home, and around the world.
Scott Miller: Today our guest is Adena Friedman, chief executive officer of Nasdaq. Adena is also a director of the Federal Reserve Bank of New York and a board member of FCLTGlobal, a non-profit which encourages long-term thinking in business and investing. We’ll talk with Adena about the role of capital markets in economic recovery and the power of technology in improving lives.
Andrew Schwartz: I’m Andrew Schwartz.
Scott Miller: And I’m Scott Miller.
Andrew Schwartz: And this is The Reopening.
Scott Miller: Adena Friedman, welcome to the podcast. We're delighted to talk to you today and I wanted to start with a question that really you raised five months ago in March when everyone was in a panic, you published an opinion piece in The Wall Street Journal. And you basically reassured all the readers of the journal. You said, “Look markets are resilient and capital is part of the cure for this pandemic,” and that looks like genius today. So congratulations on that, but can you talk to us about what you've been through over the past several months of this crowd this pandemic? And what's your vision for the next six months?
Adena Friedman: Sure. Well, first when we wrote that op-ed, think that it was during a time of great uncertainty. So it was right in the beginning or middle of March, and so we were dealing with the beginning of what was going to become you know this months-long issue that we're having to face. And I would say, if anything, it could be, you know, more than a year that we are we are facing this pandemic. So at that time, in that level, that great period of uncertainty, we started to look at, okay, what are the key components of making sure the economy continues to operate, to make sure that companies can get the capital they need in order to be able to manage their way through this crisis? And the Fed was just on the verge of making some very, very big decisions around supporting the economic system and the financial system. So on the back of that we said, “Well, let's make sure we recognize that markets today are largely electronic, they are interconnected, it's a global ecosystem.” The firms, the financial firms, that really are the underpinnings of the markets with us have also gone largely electronic, they've done a lot of business continuity planning on the back of 9/11 and Superstorm Sandy to make sure they can also operate in a remote environment. So let's make sure that if the market mechanics are operating and the plumbing, the market plumbing, is operating efficiently and effectively, let’s keep those markets open because capital is going to be part of the cure. We have to make it so that companies can get access to capital and that's the whole purpose of the public markets, is to give them access to capital so that they can manage their way through this great unknown. And I do think that it has been quite helpful, in terms of not only companies going through periods of stress and being able to borrow money or issue equity to manage through it, but also new companies that are in fact leaning into and providing solutions towards the pandemic, being able to get access to public markets, too, so they can grow and expand their businesses and support the economy that's coming. So I think that's been a big part of our focus. Moving to a remote environment for Nasdaq was relatively seamless and so we were very fortunate to be in that position. And since then, we've been adapting our business to make sure we can manage our, all of our clients remotely as well.
Andrew Schwartz: Adena, I just want to jump in, this is Andrew. I know that tech is everything. And we talk about tech all the time, but coming out of the pandemic, tech really is everything. And how do you think that's going to, how do you think tech is going to lead, coming out of the pandemic, in ways that is going to transform society? In terms of working from home, in terms of, you know, us working more efficiently, in terms of markets being strengthened.
Adena Friedman: Well, I think the first thing we have to recognize is there were two really key trends that a lot of the technology companies have been leaning into for the last decade or more, two, maybe two decades, really. One is consumer convenience. And you kind of see the ability for consumers to get anything they want, at anytime, from anywhere, and have it delivered to their house. Or, you know, have it so that they have much more convenience in terms of managing their daily lives. And that was a nice-to-have for many, many years and it, you know, in a period of one month became a need-to-have, right? So we suddenly needed to be able to have all of those things delivered to our house. So all of that kind of technology that supports that consumer convenience, I think, you have to assume that a lot of people started using it that didn't before, they've gotten used to it, they've had to use it and now coming out of the pandemic, I believe that that's going to just be a new way of managing consumer, consumers going forward. So that's going to be a big, big tech trend that just got amplified exponentially. The other is the global business environment we're in, the distribution of employees, the distribution of clients, and how to manage workflow in that kind of distributed environment. Again, something that companies were starting to, I mean, we've been investing in it for a while but it was like, “Oh gosh, I gotta make that capital investment” or “I've got to bring in that sass service,” and those were harder decisions to make until the pandemic. And suddenly they were like, “well, I guess we're going to do it right now. We're going to do it in two weeks instead of in two years.” And so you saw all of these technologies that were really designed –(inaudible)- workforce becoming need-to-haves very quickly. And now that they're in place and the investment’s been made to make it work for companies, you have to assume it's really gonna become a mainstay which will give companies the ability to be much more flexible with their employees going forward, which will allow for companies, frankly, to attract talent from a broader district, you know, global or geographic distribution. And will give, I think, companies also the flexibility to serve their clients in a more distributed way. And so, I think all of those things, of course, coupled with the cloud and that whole movement towards the cloud, anyway, I think that all of that combines to create an amplified and more interconnected global commercial system for businesses to operate in. And that will, obviously, is here to stay as well.
Andrew Schwartz: What's it like working from home for you as a CEO?
Adena Friedman: You know, I, when I first started working from home, I actually had to get over guilt, you know, I felt that there's this thing about, you know, putting the uniform on. I always talk about, I grew up wearing a uniform, putting the uniform on dnd going to the office and having that become separate from home and being, obviously, with all of our employees and having that energy and the spontaneity that comes with being together. And, but the guilt of saying, “Well, gosh, I guess I can actually be home and work,” has been something we had to get over pretty quickly. It is okay to have, not to have a commute. And it's okay to be able to connect remotely with your employees. But the actual experience, since we went home has been terrific. Couple things, one, we are a global workforce, we operate in over 50 countries and we now have these technologies like Zoom and WebEx and Teams that gives us the chance to connect as if we're all in one place. So it's an equalizer. I would say it's a great equalizer for the employees, because once you're in a Zoom room, you're all the same, you're in the same box and you're all here to talk together and it creates a lot more camaraderie in an interesting sense. The second thing is, I've been meeting a lot more with the senior team because I'm traveling less, they're traveling less, so we're able to make decisions faster. We’re able to go deeper on issues, come to the right conclusions together, and have much more of a, I would say, a collaborative way, but still in a quick decision-making construct, which is really important for our business. And then I think the last thing is just the flexibility it offers to employees in terms of being able to manage the challenges that they've suddenly are facing on the work-life balance side, and making it so that we can still work with them to be flexible, but they still can still take care of home.
Andrew Schwartz: Yeah, you know, it’s interesting, Bloomberg reported on a study today, there was a pretty big study that showed that we're working longer from home, we're working, we're sending more emails, we're attending more meetings and you know I keep trying to tell Scott that he doesn't need to wear a tie around the house, but he just won't listen to me. He refuses to take the suit off, he keeps wearing the tie.
Scott Miller: Old habits die hard, Andrew. No, it's true, but, you know, you're describing a corporate culture that has had to adapt, they've had to go from the nice-to-have to the must-have. And that focus seems to be paying off with consumers. I've noticed in polling that while politicians’ ratings are going down and the media's ratings are going down, corporations’ ratings are improving in the minds of voters or the people being surveyed. What is going to be the role of the corporation coming out of this? Because people are noticing and appreciating the performance that's making a difference in their life.
Adena Friedman: Well, I think there actually, I think there's two trends, actually. One is this issue of, “Wow, the companies have come through and I'm still able to get my core needs met plus others with these companies that have done all the, all these investments in technology, and workflow, and supply chains, and all that.” So I do actually think people have been really impressed that everything is continuing to work, there is still food on the shelves, you know, there's still ability for us to buy those key appliances or key things that we need to be able to run our daily lives. And they've done that in a way while also managing the safety of their employees. And I think that that's been greatly appreciated. So that's one part of it. But I actually think the other part of it is that over the last year, since the BRT came out with their new, their new sense of purpose for companies, I think companies have actually been demonstrating and embracing this concept of stakeholder capitalism. I think that they are taking that seriously. And I think with some of the social issues we're now facing and we have to make sure that we're addressing, companies are actually leading in that area more so than some of the other institutions that our country relies on. So you're seeing, honestly, companies come forward and make a difference. So, you know, one of my favorite examples is during the depths of the crisis, when we had the lockdown, there was a grocery store chain that would go out to all the local farmers that they served and buy up all of their fruits and vegetables that otherwise would have just sat on the fields. And they bought them all up and then they donated them all to food banks, right? That is a great example of them using all of their strengths which they know how to do, they know where to get it, and being able to do public good with it. And there are obviously companies that translated, transferred, their manufacturing plants to ventilator plants. And so all of those types of things demonstrated that companies do understand that they serve a role in society. And The Business Roundtable has basically said, “This is an important part of who we are today.” And I think people have been, I think that CEOs and companies have been able to take that role on. So I think it's a combination
Scott Miller: Yeah, that makes a lot of sense. And in some ways, this is an idea that's newly expressed in the BRT statement, but many companies practiced this, you know, 30, 40, 50 years ago.
Adena Friedman: Oh yeah, I mean a lot of companies have always, I mean, I think that stakeholder capitalism is not a new construct, but it's having a new sense of mission and purpose. It’s having, honestly, the ability to be able to go out and be more loud and proud about it, whereas I think before, I think certain companies maybe felt that if they really promoted the social good they were doing, they would get pushback from the investors. Today, actually investors are encouraging them to play a bigger role in society. The ESG movement among investors has actually been amplifying this movement. You've got The Business Roundtable who’s kind of come out with their statement, you’ve got investors on the other side saying, “Yes, it's not an or, it's an and, but absolutely, you should be, that should be part of what you see your, your role as.” And that I think has then empowered CEOs to be able to stand up and do more. Now at Nasdaq, for instance, we've always had a foundation and we've leveraged that foundation to build something called The Entrepreneur Center. But we've now taken that Entrepreneur Center, which really was a San Francisco physical location and we brought it online. So it's now national. We can educate, it's all free education for entrepreneurs. And we can take that and now we've actually put more money into our foundation, we've made donations out to the communities around us to help serve the basic needs of our communities. And so we've been doing these things in a much more overt way and people are much more interested in how we are giving back to society. I love having the opportunity to talk about that, but it's an and, you know, it's also on top of delivering for the shareholders.
Andrew Schwartz: Is there an ideal role for a corporation in society?
Andrew Schwartz: Well, I look at it as there's this concept that I like to talk about, which is cooperative capitalism, which where you take the public sector and the private sector and you look at their roles as symbiotic to each other and not in conflict with each other. So you've got the, the role of government is obviously to solve very large social issues, right? Make sure that they provide that social capabilities for education, for family care, for healthcare, for defense, you know, all of those large social constructs that need to exist to have, you know, a country operate properly and then you have business that are super nimble. Creative, entrepreneurial, and big with big drivers of employment, right? So they have a big role to play. Well, what if you actually brought those two together to say, “Okay, well we've got these social issues, how do we do more public to private partnerships to make sure that we're leveraging the innovation that corporates can bring to solve larger social issues?” I think that there are definitely things that the government tries to do themselves that they could probably do better if they partnered. And I think a great example of that is what NASA is doing with SpaceX. I think it's a perfect example where you've got NASA that has this great mission long-term vision, long-term investments, they're making in space exploration. And they, and they are looking at it from a different perspective, which is what is the social good that comes out of that? All the experimentation they can do. And then you've got SpaceX, which is a very efficient way of launching rockets and they have their own ambitions, but you put the two of them together and you can be much more efficient in delivering on that long-term mission. So I think that's, I love that as a, for example of cooperative capitalism.
Scott Miller: That's brilliant because about five years ago there was a group from NASA that came to CSIS and they were rudderless. They were like, “We're kind of the museum of space exploration and we got to do something else.” But they weren't sure what they should be doing and was really the private initiative of SpaceX and others that have caused that government entity to be reborn. It's a wonderful example.
Adena Friedman: Right. And then you have the benefit of the fact that SpaceX isn't the only one doing it, right? So, you've got Boeing and you've got Virgin Galactic and others, and I think Amazon also has or Jeff Bezos also has Blue [Origin]. So you've got all of these competitive constructs and dynamics going on the private sector that's driving innovation, driving people to go faster, to be more efficient than to compete with each other that they can then work with an agency that has a more societal mission. And you bring all that efficiency into that societal mission. It's a really good combination
Andrew Schwartz: It's obviously good PR for the companies to spur innovation within government and within the larger society. So it's got to be good for business.
Adena Friendman: Yeah, of course. I mean, at the end of the day, they are, they're owned by investors, so they're going to be looking at what they can do to make sure that they deliver a return, but they also recognize, I think the big recognition is that there's a broader stakeholder group that they have to serve along the way. It's not just what they do, it's how they get there. And then I think that's an important part of being a successful, sustainable company today. And I think it's honestly been what many, many companies have done for a very long time, but it's now much more deliberate. It's more transparent. It's also, frankly, to those companies that haven't been taking that part of their role seriously, they recognize now that's part of being a sustainable company. And people want to be part of those types of indices, they want to be, they want to be included. They want to get more investors and this is going to be a means to get there.
Scott Miller: Let’s talk for a minute about your business which is the equities trading. Which as a business over the past 20 years it's been massively more efficient. I mean, you've driven cost out, you've driven efficiency into the business. And one of the consequences of that is it's more, you have greater access to smaller investors. How does that play out in the future? Is everybody going to invest nickels and dimes through Acorn? You know, we're now, we're free trading platforms these days, almost anybody can do it. What’s the upside and what's the risk of the world that you created through efficiency?
Adena Friedman: Yeah, sure. Well, first of all, Nasdaq today is a global technology company that serves the capital markets around the world. So we take our technology and apply to our own equities markets in the US. We own many of the markets in the Nordic countries in Europe and then we provide the same technology that we use our own exchanges, we provide to 120 other exchanges around the world. And we also provide our technology to about 170 broker dealers. So we've really become a scale technology provider focused on efficiency, speed, resiliency, and determinism, right? So that's, if you think about all the things we do, and frankly, integrity. So we have a big integrity sweet around market surveillance and other things. But if you think about, you know, our fundamental mission or a market’s fundamental mission is to maximize access and minimize friction. And that's really has been always our mantra, but technology has been really, that evolution of technology has really enabled us to get to a state where we have single microsecond latency in our systems. We have resiliency and a scalability to be able to go from, we were averaging around let's say 30 to 40 billion messages a day in our systems. And we peaked out a 62 billion in February, right? And we were able to do that in ramp up instantly without any degradation any material degradation of speed, so we were still in that kind of, I would say maybe double digit microsecond latency during that period.
Andrew Schwartz: Can we pause for a minute and just go back to that? 62 billion messages.
Adena Friedman: Yeah, that's right. So between our equities and our options markets. And actually our options markets really being more data-driven and data-heavy than our equities markets, but yeah combined in the US, our options equities markets had, we had a peak day of 62 billion on February 28th.
Scott Miller: And it worked. It held together. well together. Maybe they didn't
Adena Friedman: Yeah, it did.
Scott Miller: Now that’s distributed intelligence.
Adena Friedman: Right. So that kind of distributed architecture, hyper-scalability, hyper-low latency. That's the way to eliminate, that's the way that we eliminate friction. So then the second thing is you got to maximize access and that is part of our job and so we'll talk about in retail investors in a second. So how do we do that? Well, we provide data to billions of people so everyone can see real time exactly what's happening in the market all the time. And that data is ubiquitous. It's everywhere now. And to many, you know, the vast majority of retail investors receive that for free. So it's a, you know, we have a data system that allows for that instant access to transparency and then we have a very efficient way of actually accessing the markets. So the result of that is that the retail investors, the dawn of electronic retailing investing occurred in the mid 1990s. Schwab and Ameritrade came around and they democratized access to the markets. And it was empowered by the fact that Nasdaq was already an electronic market. So it was pretty easy for them to plug in and play in a private network. Today, it is the, a plethora of online retail brokers who have now gone commission free, meaning it is truly free to trade. They don't, many of them or some of them don't have minimum account balances. So you can open an account for very little. And you can instantly gain access. Now there are a lot of pros to that, which is that you are putting, you know, your own wealth into your own hands to decide how to manage, you know, and to be able to take risk, but also manage risk in the markets yourself. I think the challenge is, you got to make sure you educate yourself on how to do it. So there are a lot of, there are a lot of elements of these markets that are pretty complex. And understanding what you're investing in, understanding how to read the basic financial statements so that you can understand whether or not, is this an attractive price or not, for that, for that asset. Understanding the plethora of ETFs that are out there that can help you manage your strategies. And then if you get into options, there's a lot of lot of risk that goes into trading options. You can use it to hedge risk, but you can also use it to take risk and making sure you really understand all of the intricacies. I think that is an important part of making sure that there is truly democratized access is education. And that's where, I think, a lot of firms are dedicated to that, whether it's Investopedia or FINRA or even the retail brokers. But one of the things we're working on is trying to bring that all together into to kind of bite sized and organized content so that people can kind of have a place to go to get some good content on education.
Andrew Schwartz: Is it hard for investors who have all this access and free access, but don't necessarily have free access to information to make these decisions? They don't, you know, meaning that, you know, you need to have subscriptions to The Wall Street Journal, to the Bloomberg Terminal, to you know, real deep financial intelligence to make the kinds of educated decisions on investing that, you know, real investors make, while you have these – this –these low barriers to investment.
Adena Friedman: Well, honestly, there are a lot of news outlets now that make that content readily available through free. You know, so I don't want to, you know, I won't try to market certain ones, but there’re definitely firms out there that encapsulate the content that might be The Wall Street Journal and offer it out through a free app. The other thing is the retail, online retail brokers also provide news through their platforms. Having a Bloomberg Terminal is actually, you know, that's way more than an average investor really needs. What they would need is maybe the Bloomberg News Service. And there are different, different subscription models that allow you to get that relatively cheaply, so I think that there is enough. I think the challenge, honestly Andrew, is waiting through that to make sure you're using legitimate news sources, to make sure you're not just following an influencer, but rather make, forming your own opinion based on quality news sources. And I think that's the one challenge that I would say, I would ask all investors to take on, is not to rely on the opinions of others only. But you can take this as inputs. But also look at objective news that is readily available, and then, and form your own opinion. And take the time to form your own opinion, because you don't really know what are the motivations of that influencer. Are they really after your best interests or theirs? And at the same time, you have to make sure that you are following your own gut, your own judgment based on as much information as you can get. I do think the information is available today. I'm not as concerned about that, but it's a matter of really leveraging it.
Scott Miller: Well, look, taking us back to, you know, where we started and capitalism being part of the, capital being part of the cure for coven It's pretty apparent, to least to me, that the firms that are on the leading edge of developing treatments and potential vaccines are able to move forward in the market because of available capital. Ideas and risk taking are being rewarded as we learn how to live with this new disease and how to manage it and save lives, ultimately, in the way we do it. What's, what's your vision for how this works out in the next six to 12 months? What do you think we have yet to learn? What do you think, what will ultimately be the, the source of confidence?
Adena Friedman: Oh, that's a good question. So I think that the fact that there is a lot of capital to put to work is, is great, because it does allow firms that are leaning into the solutions to be able to get the capital they need. And they are being rewarded for that. And you're right, there is still a risk appetite out there for great ideas. And so I think that's really helped manage through the situation. But if we look out over the next six to nine to 12 months, I mean, I really do think we've come to the realization that the best path to “normal” whatever that new normal is, is going to be a widespread availability of a vaccine or really good treatments. You know, treatments that turn this virus into what would be considered a normal flu or even less than that, right? Having predictability of symptoms, having an understanding of how to make sure that you don't end up in the ICU, understanding how you can manage through it. If we can turn it into a manageable virus and/or provide vaccines that really mitigate the virus on a broad-scale basis, that's what we need. And I do think that it's amazing how fast the healthcare industry is responding. But there's going to be, we got to let them go through their process. And in the meantime, we've got to manage through the normal we're in, you know, we've got to deal with the situation we’re in and make sure that we minimize the terrible consequences of it.
Andrew Schwartz: Well, I mean, we're gonna have to because, you know, many people in the medical community think that this pandemic is endemic, meaning it's never going to fully go away. There’s never a full cure like AIDS, you know, this is something we're gonna have to live with and we're gonna have to find ways to mitigate it, like you said. We're gonna have to have cure, you know, things that, you know, make it like a common flu or ways of treating it that, you know, don't make it catastrophic. Do you think that we're going to get there in the next year or so and be able to, you know, function more normally?
Adena Friedman: You know, I'm actually pretty optimistic of that, but I'm not a medical, I read the news like you guys do. I’m an eternal optimist, so I'd like to think that by next summer, we've gotten to the point where we know how to manage the situation and still be together. And, but I do think, you know, one of the things we also have to recognize is there are a lot of lot of deep-seated consequences to what we're going through right now. Think about what it's like to be a child right now. And to suddenly have, you know, stranger danger has gone on a new meaning. And also understanding how to kind of function in groups again and how to get together and not feel worried. All of those things are going to be psychological effects that we're going to have to, I think, will take time to get over. But I also think that if we can demonstrate that the medical profession, I mean, what is happening, modern medicine’s amazing and if we can demonstrate the ability to mitigate the worst parts of this, then I think that, I do think that people are really eager to get back together and start to have that, that sense of normal again. And the one thing that I say I missed the most about an office environment is that spontaneity of ideas, the creativity that comes from being together. You said there are a lot more emails going out. The reason there’re more emails is because you have to structure your communication more now. Because you can't have that easy, quick conversation in the office, you have to schedule all your meetings. So in order to get spontaneity, you have to schedule a meeting for spontaneous idea making. So I do think that's part of the reason why people are working harder, they're working longer, because they don't have the benefit of that community to help them come up with ideas and execute on them efficiently. So I am eager to get, have the ability to bring our people back together. But I also want to make sure, first and foremost, that we do it in a safe way.
Andrew Schwartz: Are you hearing any big business ideas that you want to share with us? We know you talk to business leaders all the time.
Adena Friedman: I have to say I haven't heard, I mean, I ask them that exact question. I think that I think it really does go down to, particularly in the companies that I've been talking to on which are more B2B technology companies, is really, really enabling that efficiency and potentially spurring creativity in a distributed environment. I would say that's the one thing that a lot of people are working on. And then, of course, leveraging data more efficiently and machine learning to be able to come to conclusions in a more data-driven way as opposed to intuition, which is, frankly, you know, if you think about it, the need for there to be data-driven decision making as opposed to intuition-based decision making is high, heightened with when we're not all together, right?
Andrew Schwartz: Absolutely.
Adena Friedman: So I think those are the things I’ve been hearing.
Scott Miller: You know, that's really encouraging, in a way, because what it says is, innovation is still going on even if we don't see it. That people are still looking for ways to improve, still looking for ways to generate new, novel solutions to the problems that are facing us now, so that’s a very hopeful situation.
Adena Friedman: Yeah, we've been innovating all spring. It's been fun. It is interesting, so we were ready to launch a new service, this market data service in the cloud and we had to kind of basically wait a month, right, because we were going to launch it in March. But actually, it is pretty innovative the way we're doing it because it's sub second, it's in the milliseconds of latency across the cloud environment. But once we launched it, actually we had more demand than we thought we would because of the fact that everyone's gone remote and they're saying, “Gosh, I want to try to, I want to bring more of my work flows into the cloud and have less physical infrastructure to support my, my systems, because I need to work in a more distributed way longer.” Right? So there's definitely been innovation towards cloud. There's been innovation in terms of leveraging machine learning. But we're still able to innovate, it just has to be more deliberate if you see what I’m saying.
Andrew Schwartz: Absolutely. Well Adena, we've taken a lot of your time today. Thank you so much for everything. Adena Friedman, CEO of Nasdaq. We really appreciate it. And we hope to be able to call you again as we, you know, proceed through the pandemic and hopefully get out of it sooner rather than later.
Adena Friedman: Great. Well, thank you all very much. It was a great conversation.
Scott Miller: Thanks so much.
Andrew Schwartz: Thanks for listening to the reopening. If you liked this episode, please write us a review and subscribe wherever you find your podcasts. You can also find other podcasts from the Center for Strategic and International Studies at csis.org/podcasts.