The Exchange: John Rogers on overcoming pessimism with patience

With his patient approach poignantly embedded in the company tagline—“slow and steady wins the race”—Ariel Investments’ founder, chairman, and co-CEO John Rogers shares lessons for how leaders can maintain stability, and even thrive, through change and crisis.

When we sat down to discuss business lessons and insights for 2024, I felt especially validated by John’s emphasis on the need for data-driven decision making. As you’ll see, there’s always room for one more piece of information, especially if you want to be a financially savvy investor.

From opportunities for growth this year, to changing the language of leadership to cultivate business diversity and inspire the next generation of leaders, John’s timeless insights prove fitting for the year ahead.

The overall tone seems to be one of pessimism, but as you look at the business landscape, what do you believe are the two or three things that will really provide businesses a tailwind in the next 12 to 18 months?

There’s so much uncertainty, so much tension, and many businesses are starting to struggle. We think this is an opportunity to take advantage of some real, true bargains, especially relative to the large-cap growth stocks that have had a phenomenal year and left so many other stocks behind.

Regarding the economic backdrop, what I’m optimistic about is that I think the Fed is now making all the right moves to ensure that we control the money supply and keep inflation under control, which will cause significantly lower interest rates next year. Those lower rates will be the catalyst to rebuild confidence in our American economy and get things going in the right direction.

You led Ariel Investments during the 2008 financial crisis. What are the lessons you learned then that would apply to today’s environment?

I think one lesson was learned and one was relearned. One that we worked hard at is we thought we had all the margins of safety with the balance sheet work that we do on each of the companies we invest in. We thought we were conservative. We thought we were cautious. We kept a close eye on what Moody’s S&P was saying about our companies. But we realized that we needed to create our own proprietary debt ratings and do much more thorough work.

The lesson that was relearned, though, is from Warren Buffett: he reminds us every year at the annual meeting that last century the Dow started at 66 and it ended at over 11,000. We had two world wars, the war in Vietnam, the Great Depression, many recessions, many, many extraordinarily difficult challenges that our country faced. But our capitalist democracy is the best system ever invented. So that was a lesson just to be reminded of, to make sure you take advantage of difficult, difficult markets and not be afraid to wade in during those tough times.

You have quite a track record of leading through risk and uncertainty. What are the principles that guide your decision making in those periods?

Something so important to successful investing is not getting outside of your comfort zone, trying to own a little bit of everything, or buying what worked yesterday. You’re going to have to have the courage of your conviction when you know your industries and your companies better than anyone else, because when you’ve got that deep knowledge, it becomes baked into your research process.

The second thing is to find one more reference, one more reference check, one more call you can make, and talk to more industry experts. Constantly search for information that will help you make better decisions during the most difficult times.

And finally, stay true to the belief that you not only want to buy good companies that have high-profit margins, strong cash flows, and real moats around them so they can invest for the sake of being around for the long-term, but you also want to buy those companies when they’re on sale.

As I understand it, you’re still very hands-on with and manage very granular investment decisions. Even though you’ve been a very successful CEO for many years, you have retained the role of the chief investment officer. How have you thought about this just from a leadership standpoint?

I was very, very fortunate that over 35 years ago I met Mellody Hobson as a prospective Princeton student. We’re proud that we’ve been able to recruit a talented person like Mellody. She’s not only become my successor but she’s also the co-CEO. She takes care of all the day-to-day operations of the business, everything from technology to marketing to legal and finance, which allows me to stay within my circle of competence, focused on the stock market, investing, and thinking about individual stocks.

You’ve talked many times about the importance of closing the racial wealth gap in this country. Focusing on Black Americans in particular, what are the biggest challenges that they face today when it comes to economic mobility and wealth creation?

There are many challenges to African Americans participating in our capitalist democracy fully. There’s data from the Federal Reserve of St. Louis that between 1992 and 2016, college-educated Blacks saw their wealth decline 10 percent while college-educated Whites saw their wealth increase over 95 percent.

What I tell folks is that we need to get rid of the old-fashioned term “supplier diversity” and use a term the University of Chicago coined, “business diversity,” where it signals to everyone that does business with the University of Chicago that they’re willing to work with minority businesses and African American businesses in everything they spend, but, most important, in the parts of the economy where wealth is being built today: professional services, financial services, technology, all those areas that you know so well where wealth is being created. McKinsey research came back with great data showing that, not surprisingly, the most high-margin parts of the spend in our economy are business and professional services. That’s where you have to focus if you want to create wealth in minority communities.

As you think about business diversity, what role do you think the private sector plays to help address this issue and close some of the wealth gaps that we’ve been seeing historically?

I think our progressive companies and folks who care about this wealth gap and challenges have to be willing to look forward and not backward. It’s a change in thinking. Many, many people are starting to think about it that way.

I’ve been fortunate to be on some great boards, like McDonald’s and Nike, that are focused on business diversity. There is a program where people can come to the University of Chicago for a one-day symposium and learn how the university has created this business diversity initiative.

President John Palfrey from the [John D. and Catherine T.] MacArthur Foundation was very supportive of the university’s initiatives because they thought that would inspire other universities, hospitals, and anchor institutions to do the right thing, including museums here in Chicago.

As you think about the next generation, how would you counsel them to develop their financial acumen as individuals?

At Ariel, we’ve been focused on trying to inspire the next generation of financially savvy leaders. We created a small public school called the Ariel Community Academy, where we give every first-grade class a $20,000 class gift, recently increased to $40,000 in honor of our 40th anniversary.

The kids watch us invest it in our mutual funds for the first six years, talk to our analysts about how to pick stocks and do research, and then in sixth, seventh, and eighth grade the kids start to pick real stocks with real money. When they graduate, they leave with a significant check to help them toward their college funding.

We also have a program at the University of Chicago where minority students receive paid summer internships to work in investment offices of major endowments. If they’re working in an endowment office, they can learn about finance, make a good living, and also give back to an institution that they love and care about.

We’ve had over 150 students go through this program at the University of Chicago, and we’re going to expand the program and, hopefully, make it better and better as the years go on. I hope it’s a model for other universities to get people of color engaged and involved with their endowment management and help shape careers in ways that maybe young people hadn’t thought about until they got to college.

John Rogers is the founder, chairman, and co-CEO of Ariel Investments. Beyond Ariel, he is a member of the board of directors of Nike, The New York Times Company, Ryan Specialty Group Holdings, and the Obama Foundation, and was a board member of McDonald’s for more than 20 years. John also serves as vice chair of the board of trustees of The University of Chicago. Asutosh Padhi, a senior partner and the managing partner for McKinsey in North America, is based in McKinsey’s Chicago office. He leads the firm across Canada, Mexico, and the United States and serves as part of McKinsey’s 15-person global leadership team. He is a member of McKinsey’s Shareholders Council, the firm’s equivalent to a board of directors.

Comments and opinions expressed by interviewees are their own and do not represent or reflect the opinions, policies, or positions of McKinsey & Company or have its endorsement.

This interview was recorded on October 9, 2023.

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