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Influencers Transcript: Mellody Hobson, October 3, 2019

ANDY SERWER: Influencers know how to stride patiently toward a big opportunity and when to seize it. Mellody Hobson has done it her whole career she's the co-CEO of Ariel Investments, a firm with assets totaling $12.9 billion, where she rose through the ranks over nearly three decades. An admirer of Warren Buffett, she has advocated for value investing ever since she joined the firm. She serves on the board of directors of Starbucks and JP Morgan Chase. Her Ted talk on challenging racial inequality, given in 2014, has been viewed more than 3.7 million times. She's here to talk about the right amount of patience in investing and in life, even as crises fills the headlines.

Hello, everyone. I'm Andy Serwer, and welcome to Influencers. And welcome to our guest, Mellody Hobson, the co-CEO of Ariel Investments. Mellody, great to see you.

MELLODY HOBSON: Thank you for having me.

ANDY SERWER: So let's talk about how you got into the world of finance. How did you choose that as a career?

MELLODY HOBSON: I always tell people that I don't think it's an accident that I'm in the investment business. When I was growing up, I was the youngest of six kids and I was raised by a single mom. We had lots of financial issues. And oftentimes, money was a real issue in my family. We used to get evicted and our phone get disconnected and our lights turned off. All of those things happened to us.

And as a result of that, I was really desperate to understand money. And so when I had the opportunity to work in the investment business as an intern at Ariel when I was 19 years old, I really jumped at it. I knew nothing about the world of finance. I knew nothing about the Dow, the NASDAQ, the S&P. Nothing whatsoever. And I walked into this world and fell in love with it. And from there, I knew this would be my career.

ANDY SERWER: And Ariel is the largest minority-owned investment management company in the United States with some $13 billion under management, founded by John Rogers, who you work for. And now, he's appointed you to be co-CEO this year. Talk about that transition, what that means.

MELLODY HOBSON: Well, I have to say that it's an exciting time for me, an exciting time for the firm. In many ways, my promotion is truth in labeling. We've been co-leading the company together for many, many years. I've been at this firm since I graduated from college in 1991. Now, according to my class at Princeton, I am the only person out of 1,100 people who's had the same work phone number since I graduated. 28 years is a long time to be in one place with one phone number.

Because of that, we've worked alongside of each other, I grew up at Ariel and grew from being a little mentee, really, sort of willing to learn and do anything, to really working alongside John, taking on more and more responsibility. In the last decade or so, we've really co-led at the firm. And so this transition that we've made this summer to co-CEO was something that was overdue and long in coming. The other thing we did is we increased my ownership stake in the business, and I actually moved into first position. So I moved to become the largest shareholder of the firm by just a marginal amount, but doing that to signal to our clients and to others that we're really thinking about the long term when it comes to our business.

ANDY SERWER: And you have another career, though, Mellody, which is you're a media person as well. And I think that you like the idea of explaining finance to people-- all people, but particularly maybe women and minorities. How do you do both of those things?

MELLODY HOBSON: Well, I'm very busy, but I actually love it. I feel like the work that I do in media to explain the investment world to people actually helps me to be better at my job, because the one thing about my job is our clients at Ariel are big institutions, and then we have mutual fund investors that are everyday people. And when you think about the fact that I have to explain an investment to everyone from a very sophisticated CFO to someone who's putting money in our mutual fund for their kids' college savings account that they might need in 15 years, that that gap of knowledge and expertise is very, very wide, but both of them need to understand what we're doing.

The great thing about TV-- it forces you to get to the point. And in getting to the point, you have to simplify. Simplifying things is actually harder than making it complicated. And so as a result of that, I've often felt that being on television allows me to hone my communication skills and to be ultimately a better teacher. I feel like I'm an evangelist when it comes to investing. I so want people to understand what I didn't know most of the time that I was growing up, because I think once you understand some of the basics of investing, the power of compounding, that you can really be-- so much can be unlocked, in terms of possibility. And so it really is a labor of love for me.

ANDY SERWER: African-Americans are under represented in the stock market. I know that's something you're keen on addressing. Why is that? And what can be done about that?

MELLODY HOBSON: Well, we've done a lot of research on this issue of African-Americans being under invested. We started researching this topic in 1998 before anyone had ever thought about it. There have been a lot-- there had been a lot of studies on gender and investing, but there had been nothing done on race. We found that there were five reasons that African-Americans were under invested. 2/3 of us said we didn't invest because we didn't know enough, so knowledge was the number one reason. Misinformation-- just having bad information. Things like, you needed to be wealthy in order to be an investor.

We have trust issues. Where is Wall Street? What are you doing with my money? I don't know where it is. I don't know how to go and find it. It's not like a passbook bank account where I can go to the bank and visit the bricks and mortar. We tend not to inherit money. That's the fourth reason. An inheritance, having money come to you, necessity becomes a mother of invention. You then start to realize, I need to figure out what to do with it. And last but not least, we tend to be more conservative when we invest. Many of us are making money for the first time. I'd be a perfect example of that in my family. And as a result of that, you say, well, I'm not going to jump headfirst into something I don't know anything about.

ANDY SERWER: I love reading about your upbringing and your mother teaching you some life lessons. In particular, that story about her making you pay the bill at a restaurant. And I think people are so interested, Mellody, in how to talk to kids about money. You have a young daughter. Do you talk to her about money already, because she's-- what-- only six years old. And then what should people do generally?

MELLODY HOBSON: So here's the great thing. So Warren Buffett says you should be able to explain an investment to a six-year-old. I'm really going to be testing that out now, to see if I can explain investments to a six-year-old. What my mom did, which I thought was genius-- we didn't have a lot of money, but I was very aware of money my whole life, from the beginning. The absence of it, the importance of it, what things cost. I knew it from a child. And so she would do very small things, like when I was barely able to do anything, she'd have me pay the check, even if it was just giving it, handing it in at a restaurant.

Then it became more complicated as I got older-- counting the change, calculating the tip. All of those things became math lessons, but more importantly, they became life lessons, because I started to know, what did a hamburger cost? What did a steak cost? All of those things became very clear to me. My mom would show me our utility bills. I knew how much our rent was. Now, some of those were burdens, because I worried about them or our lack of ability to pay sometimes. But also, the big thing was, I had a point of view. And I think that's super important.

As parents, we often are afraid to talk to our children about money. We actually rank it beyond talking to them about sex and drugs, because we have a lot of money fears. And what I challenge parents to know is that, whatever money issues you have, I promise you you are passing them onto your child, because that's the way we learn. We watch and observe.

ANDY SERWER: Well, what? You've got allowance and whether or not your child has to work for the allowance coming up, the cell phone stuff coming up, all that stuff.

MELLODY HOBSON: Do you use cash? Do you only pay with credit cards? Do you max out? Do you buy things you shouldn't? Do you make impulse purchases? All of those things are being taught subconsciously to your children. That's actually how we learn.

ANDY SERWER: You mentioned Warren Buffett. I know you guys are disciples somewhat, or at least are interested in listening and learning from him. So what do you know and what have you learned from him?

MELLODY HOBSON: Well, he's the greatest investor of my time. I mean, perhaps all time. And we have a tremendous amount of respect for him. And we always joke with the fact that, because he's living, we get the manual, right? When you think about how to be a great investor, we have the manual. We can watch what he has done. And there are so many things that he's taught us that have been profound. I remember, once, being at a speech that he gave where he said, people think I'm looking for a needle in a haystack. I'm just looking for haystacks. And he talked about how he's buying obvious things that are great businesses.

So I think the one thing that directly relates to who we are at Ariel-- because we have a turtle as a logo. He says that time is the friend of the wonderful business, the enemy of the mediocre. And so over time, that's how you prove if you're good or not, and it's something that is inarguable.

ANDY SERWER: So let's talk about the markets right now, big picture. What is your take on things going on right now in terms of the stock market? The bond market's crazy right now, with negative rates. What's your viewpoint?

MELLODY HOBSON: I would have to say, I spent most of my life in equities. We watch bonds just as, sometimes, an indicator, but we are not bond investors. I would say that my view right now is, the market certainly is fully valued. However, we think the fundamentals, especially in the US, are still very good. They're very compelling. We might see the economy slow, but we're not seeing a recession.

We just don't see it right now. And when you look at some basic statistics, the employment numbers are so compelling. We've seen some wage inflation, which helps with consumer spending. Consumer confidence has stayed very, very high. There are a lot of positives.

Now, admittedly, there are also some negatives out there, and most of the negatives appear to be geopolitical and self-inflicted. The fact that we are on recession watch probably bodes well for the stock market in a very weird way, because as Warren Buffett says, the market climbs a wall of worry. And that worry that is out there continues to create opportunity.

Even though we've had this tremendous run in the stock market over the last decade, we're still finding value, because when companies disappoint, they basically get shot. They get left for dead. And it's those businesses that get left for dead that create an opportunity for us as value investors.

ANDY SERWER: Trade war. How is that figuring into your thinking? I'm assuming that might be one of those self-inflicted wounds you were talking about.

MELLODY HOBSON: Self-inflected wound. Not good. Negative. No one wins a trade war. Full stop. No one wins. The question is, how much we can stem the damage that will be done?

There are reports today, obviously, that China's growth has been dramatically slowing. I spent quite a bit of time in China over the summer. It was not obvious to me, when you go into stores and see the robust activity there, but certainly, that is what we are seeing. I think that they have as much of an incentive as we do to figure this out. The question is, can both sides be rational?

ANDY SERWER: Right.

You are on the board of JP Morgan and Starbucks. I know that you probably can't talk about what goes on inside those board meetings, but number one, is there a discussion of the trade war? And number two, what do you think your role is? What are you bringing to these companies, in terms of your perspective, Mellody?

MELLODY HOBSON: We've discussed everything in the meetings. We discuss all of the issues that are going in the world, because both are global businesses. So it's not a one-issue meeting, ever. There are a lot of things that are considered. What I would say is that-- what I bring to the board meeting-- I think I bring an investor's perspective, a long-term investors perspective. So I don't think in quarters. I think, hopefully, in decades, and I think that's very important.

One of the questions I always ask in my boardroom is, if we were private, would we do this? 'Cause I'm always pushing us to think through, what does the public company life do, and how does it affect us versus how private companies operate? And I think when you get that answer, it tells you a lot.

And I think the other thing-- I'm a financial expert, obviously, because of my time in the investment business. And then my knowledge of communications and media helps as well, in terms of how things will translate. And so hopefully, I bring a unique perspective to the conversations.

I have a point of view around diversity and inclusion, and to the extent that companies are really prepared to talk about that issue and address them-- and in the case of Starbucks and Estee Lauder-- excuse me, Starbucks. I used to be on the board of Estee Lauder. In the case of Starbucks and JP Morgan, they are very, very, very serious about this. And so it's great to be a part of that conversation, and move the needle forward in terms of inclusion, and making sure that we have people of color represented in all areas of the business-- with our vendors, in our philanthropy, all of those things.

ANDY SERWER: Serious but effective, because I remember you talked about how in different facets of the business world, if you didn't have profitability, you'd be fired. If the product was late, you'd be fired. Diversity-- we're working on it. Do you see that too much, still?

MELLODY HOBSON: We certainly see it a lot. I see it a lot. But certainly, from the perspective of a business, an investment firm that reads annual reports for a living and spends a lot of time sitting down with people who run businesses, we hear a lot of excuses when it comes to why boards are not diverse or management teams are not diverse. We do not believe you can be a 21st-century company in this world without having a perspective, and being inclusive, and having a diverse make-up in your employment base. We think it's extraordinarily important.

And what I've said-- and I don't equivocate on this-- firms that are not paying attention to this are committing corporate suicide. It may not be fast, but at some point, it will come if you don't pay attention to this.

ANDY SERWER: What do you think about, say, Alexandria Ocasio-Cortez and what she's saying about our society-- that it's not fair, and that the rich need to be taxed a lot more?

MELLODY HOBSON: I don't think it's that simple. I don't think it's about just a tax situation. I think that, certainly, fair and equitable taxes are important to any society. I think making sure that people have a living wage is very important as well.

You need to be in a society where there is the possibility-- and America has been perhaps singular in this perspective-- that you can move up. And I think that's very, very important. I am a capitalist, unapologetically so, but I do think that capitalism itself can also be more inclusive. And so I think there is work to be done, and I think that voices all over the country, in Congress, in business, and amongst our citizens-- all, hopefully, can move us in a better direction. All of those voices merit our attention.

ANDY SERWER: Is there a way to make that happen? You told the New York Times capitalism needs to work for everyone. You were just addressing that. But are there specific mechanisms to actually engender that kind of change?

MELLODY HOBSON: Well, that's why diversity is so important inside of corporate America-- because part of what happens is, by being exclusive, you naturally isolate people and don't give them the same opportunity. And so inclusive creates opportunity for everyone. So I want to make sure everyone has a fair shot at the job, at the piece of business, at the donation, whatever it is-- that there is not a bias, conscious or otherwise, unconscious, that is there that might prevent that from happening.

So that's one way of, I think, capitalism being more inclusive and more fair. But I also mentioned a living wage. I think that's something that's very, very important that-- again, from an Ariel perspective, we think a lot about, can you live in whatever city it is on the wage that you have? I think the conversation of wages have been oversimplified on the issue of a minimum wage and moving that target, because it really is different by location. And we've seen, obviously, cities and municipalities take matters into their own hands on this issue.

ANDY SERWER: Right, so you're for increasing the minimum wage?

MELLODY HOBSON: I am for a living wage. The current minimum wage, I think, is not the right number. I think it's way too low. But I do think it's not a one-size-fits-all answer.

As I am suggesting, I think the tax policies of our country absolutely deserve a new look. And if those who can't afford to pay more should, it should not be regressive. Warren Buffett has talked a lot about that-- that his effective tax rate for himself was lower than that of his assistant. All of those things are very, very important, and certainly, I think that that matters a lot over the long term, in terms of how people feel about our government and our society. And we've already seen the low scores that exist there, which is not good for democracy.

ANDY SERWER: As a Chicagoan, you're close to the Obamas. How are they doing, and what's their take on what's going on as the election season arrives?

MELLODY HOBSON: I would say, one, I would not want to ever overstate any relationship. I've gotten to know them through our time in Chicago and their time in the White House. I am a big fan of both of theirs. I consider it a real honor and privilege to have gotten to know them. I would never assume anything about how they're feeling or their take on anything, because I don't have access to that information, and I certainly don't think it would be appropriate, if I did, to repeat it.

Any encounters I've had with them have been excellent, and they seem like they're living their best lives.

ANDY SERWER: Any ideas, in terms of who you might support for president on the Democratic side?

MELLODY HOBSON: Whoever is the nominee. I feel like whoever gets the nomination, I'm all in.

ANDY SERWER: And let me ask you about President Trump. What is the impact of, say, his incivility, and is that a problem? Or do we all just need to lighten up? Or is there a real impact on our society?

MELLODY HOBSON: I think there's an impact on our society. I think it's enormous. I think there's an impact on our standing in society, especially in the world. Like you, I get to travel around the world, and the questions are upsetting, about what is going on in America, and what are we tolerating? It's very, very disappointing.

I just have higher hopes and higher expectations for us as a society and our leaders. I respect the office of President no matter what, but I'm disappointed in how our current president articulates his points of view. I think it is hurting people, certainly, with the targeted attacks, but I also think it is hurting civility, and it's hard to get it back.

ANDY SERWER: Shifting gears a little bit, Mellody, what should young people do when they're starting out in terms of jump-starting their careers? What mistakes do they make? What's some advice from you?

MELLODY HOBSON: I'll give you the advice that John Rogers gave me when I started working at Ariel. My business partner. And he said to me when I was just a pipsqueak, people undervalue time, and they overvalue money. And I think that that's really important-- understanding your time is extraordinarily valuable. You cannot get it back. And I've seen people make trades, based upon what money they were going to make, that were bad over the long term for them.

I think the benefit that I've had at Ariel is, I was never in the mode where the grass was going to be greener on the other side of the fence. I was very, very content with the side of the fence that I was on, and as a result of that, I could keep my head down and be so focused, and ultimately, that led to great strides for me.

I'm concerned about the fact that they say the average American has 11 jobs in their lifetime. They're moving around so much that in some ways they're not having the opportunity to really be patient and take the time to grow and be nurtured into a role. And so the one piece of advice that I would give a young person today is to be patient. That's not surprising, because we have a turtle as a logo, as I've already mentioned. But this idea of just taking a beat.

I remember John telling me, every game is won with patience. You cannot win the Indianapolis 500 in the first lap. The basketball game comes down to the last two minutes. Even in dating, it's about being patient and thinking long-term. And if you really do believe that, and you apply that to your career, I think it will make a major, major difference for a young person.

ANDY SERWER: That's really interesting about changing jobs, Mellody. And you've only had one. Maybe that's not enough, because I think-- you're lucky, and that's great. But I think that's maybe an unrealistic expectation. But I think you're right about the 11 seems too high, and maybe some of that's a function of, also, the economy being so good recently.

MELLODY HOBSON: It's interesting. The 11 is largely skewed toward the earlier parts of your life, where people do jump around. They tend to be more fixed as they get older. I actually don't think it's unrealistic, because I think that the idea that you could find a job and really love it-- I remember once, someone sent me a cartoon from "The New Yorker," and it said, what? No get up and go? Because I had stayed at a job for so long. But my job continually challenged me. I continually was trying to climb new mountains, and that created a great deal of curiosity and fulfillment in me, and it still does today.

I've also had the opportunity to be inside of other companies and learned there as well. And so I would not trade this, and I would actually challenge people to think longer-term about some of these stays that they have.

ANDY SERWER: I want to ask you about your husband, George Lucas, the "Star Wars" creator. You guys are one of the most prominent interracial couples in the United States.

MELLODY HOBSON: We didn't notice.

ANDY SERWER: I was gonna ask you, is that still an issue in America? Or you're saying it isn't. That's good to hear.

MELLODY HOBSON: It might be an issue for other people. It's not something that I spend much time thinking about. Whoever you fall in love with is who you fall in love with, and we didn't think about it from a race, or age, or any other perspective. We lived in different cities. There were a lot of reasons it shouldn't have worked, but it did.

ANDY SERWER: And you guys have this massive museum project, which is so exciting. And it's moved around a little bit, but now it's really found a home in LA. Can you talk about the museum? I don't think people really know about it enough, so here's your chance.

MELLODY HOBSON: It's called the Lucas Museum of Narrative Art, and it's a museum devoted to art that tells stories. And that's not surprising, that my husband would have that perspective. He and his friends-- they collect a lot of art that tells the story in one frame. So therefore, you see things like Norman Rockwell or Maxfield Parrish, but you also have all sorts of contemporary artists. At the same time, you have the narrative art of our time, which is film, showcased front and center. You will have that front-and-center at the museum.

It will be in an awesome building in Exposition Park in Los Angeles. We just were there visiting on Friday with Mayor Garcetti, and it is a stunning, stunning, stunning construction site. They gave us a statistic that we have poured as much concrete as it would take to build a 5-by-5-foot block sidewalk from Los Angeles to Chicago. So it's a giant site. We are very very, excited about it, and it'll be a place to visit in 2022.

ANDY SERWER: And does it look like a spaceship from "Star Wars?"

MELLODY HOBSON: Some people say it looks like a spaceship.

ANDY SERWER: I think it does.

MELLODY HOBSON: You can go online and look at it. It's a remarkable design by Ma Yangsong, who's a Chinese architect who's won a lot of architectural prizes. This is his first building in North America, so we're very excited about it, the first digital building ever built. Our construction workers do not have blueprints. Everything's on an iPad. It's the first time it's ever been done in America like this. And so it's really a feat. It's a great wonder.

ANDY SERWER: And when will this be ready and open?

MELLODY HOBSON: We're looking at sometime in 2022, so stay tuned for the exact date and time.

ANDY SERWER: Right, and it's a big-budget project, right? It is.

MELLODY HOBSON: Yeah, it's a big-budget project, but it's the right thing to do. We've had a lot of good fortune in our family, and the one thing, I think, is that we are holding society's money. And this money is to give back to society. And so we take this job seriously, and this is one version.

This museum is a school for schools. That's how I think about it. We have 500 schools within a 10-mile radius of our museum, including the University of Southern California, and so it really will teach children for decades, and hopefully hundreds of years to come, about the importance of this kind of artwork and what it means for them. The goal is to inspire young people to see beyond their circumstances and to see what can be possible when you dream and imagine.

ANDY SERWER: And it was gonna be in San Francisco, and then it was gonna be in Chicago, and now it has a home in LA.

MELLODY HOBSON: The good news is we are where we're supposed to be, which is Los Angeles, and they've been fantastic. Mayor Garcetti helped to make this happen, as well as so many councilmen and so many other people. There are too many to name. But it absolutely is in the right location.

George calls it-- because we're on a museum campus with other museums surrounding us-- we're across the street from the Coliseum-- he calls it a food court of museums. So he's like, you can go to the exposition museum, the science museum. There are all sorts of museums there. The African-American Museum. There are so many choices, and we think that'll be great for families and tourists.

ANDY SERWER: Sounds so cool. And it's so great to hear that you can actually build something in this country, because it's getting increasingly difficult, sadly, I think. And so I'm glad you guys are doing it.

MELLODY HOBSON: Not only can we build it, but we're building it with great people. They're visiting the workers on Friday, and George said, you're the artists. They truly are. It's like a sculpture that we're building, and they're the artists, all of these unbelievably great workers, and we're documenting their stories. Their narrative will be a part of the narrative of the building. We're very excited about it.

ANDY SERWER: And another philanthropic endeavor you're involved in, Mellody, is also with the schools in Chicago. Can you talk about that a little bit?

MELLODY HOBSON: I chair a program called After School Matters. We're the largest after-school program in the world. To give you some context, we serve about 30,000 students over the course of a year. There are about 100,000 high school students in public schools in Chicago, so we are serving a third of them, with after-school programs ranging from, literally, horticulture, farm-to-table, a NASA space program. We have hip-hop dance classes. You name it, we have it. We have about 1,000 programs that go on at any given time.

We are the largest employer of teens in the city of Chicago in the summer. Last summer, we had 13,500 teens work for us as students at After School Matters. So it's a marvelous, unbelievably exciting program that mostly serves black and brown kids who are underprivileged. It gives them all the great advantages that your children had, that my daughter will have, to pursue their dreams. And at the end of the day, the great thing, also, is that we can see a direct correlation between their participation in our programs and higher graduation rates in the city of Chicago.

ANDY SERWER: And finally, Mellody, this program is called "The Influencers," and I'm wondering how you see using your influence on the world.

MELLODY HOBSON: I haven't thought about that in that way, but what I would say is a story that I think ties in. I swim, and I have this swim coach who has me wear these gloves on my hands when I swim so my fists are like this. And halfway through the lesson--

ANDY SERWER: That's hard.

MELLODY HOBSON: Very hard. It lets you see, fundamentally--

ANDY SERWER: One arm behind your back.

MELLODY HOBSON: --what's wrong with your stroke. Halfway through the lesson, he'll say, take your gloves off. And then, 'cause you get your hands, he says, use your power for good.

And I've thought about that a lot as a metaphor for whatever power I have. How can I use it for good? And to me, it's to help black and brown kids, because that's what I was, who needed help, and who needed some extension of a person's capacity so that I could take that opportunity and run with it.

John Rogers gave me that. So many teachers gave me that. So many people really extended a hand to me, and so I think, how can I do that?

I overlay that with something I learned from my husband. He said, whatever you do, Mellody, do at scale. Go wholesale. He says, don't spit in the ocean. So I think broadly. After School Matters-- 30,000 people. What we will do with the Lucas Museums-- millions of people. How can we use our influence for scale in a way that will ultimately affect change and make our society better to the extent that we can?

ANDY SERWER: That's a great answer. Mellody Hobson, thanks so much for joining us.

MELLODY HOBSON: Thank you.

ANDY SERWER: You've been watching "Influencers." I'm Andy Serwer. We'll see you next time.