On this week’s episode of Fortune’s Leadership Next podcast, co-hosts Alan Murray and Ellen McGirt talk with Lynn Martin, president of the New York Stock Exchange, about the pushback against ESG investing and how today’s data and technology help individual investors. Also on the show: why Martin says “it’s just a really interesting time for CEOs.” Hint: It has to do with human capital.
Alan Murray: Leadership Next is powered by the folks at Deloitte, who, like me, are super focused on how CEOs can lead in the context of disruption and evolving societal expectations. Welcome to Leadership Next, the podcast about the changing rules of business leadership.
I’m Alan Murray, and I’m here with the one and only, I wish there were more, Ellen McGirt.
Ellen McGirt: Thank you. I wish there were more, too. I’m really excited to be here today, partly because we’re going to be talking about one of your favorite subjects, and you know how I geek out when you geek out. We’re going be talking about money and markets and the economy.
Murray: Yeah, we’re, Ellen, we’re here with Lynn Martin, the president of the New York Stock Exchange, and—don’t pin this all on me. I know you are a recovering market nerd. If we have time, we can dive into that. But I’m excited about it, because everybody’s trying to figure out what’s going on in the market right now, for one thing. Also, we want to have a discussion about ESG investing, environmental and social investing. There’s a big pushback going on. Lynn wrote a powerful piece for Fortune on that topic, and we should talk about it. And we can talk about her background, which is fascinating.
McGirt: It is. You know, she stepped into this role in early January. She’s the second woman to lead the exchange. And it sounded like she was a quantum computer and math nerd from the get-go which is a very, very cool thing to see, a woman trailblazer really achieve great things and run one of the greatest exchanges in the world.
Lynn, that was me saying wonderful things about you. You’re right here listening to me, and welcome to Leadership Next.
Lynn Martin: Thank you. Thanks so much for having me.
McGirt: All right, Alan, ask the big question.
Murray: Oh no, no no, you first. You first. Dive in. I want—I want you to prove what a nerd you are, Ellen.
McGirt: Lynn, before you got out, we were, I was just chatting with Alan. I am not known for my investing chops, but I did briefly work for a wire house. Back in the day when we had to fill out the forms, you know, the pinks and the yellows by hand, and we had to be good at fractions, like that was sort of my, there were computers around. but the the markets weren’t computerized in the same way, and there was just a lot of back and forth. When you stood on the floor of the New York Stock Exchange, you could hear a rally coming. I mean, it was kind of an amazing thing. As a as a younger, middle-aged reporter, but new to the business to experience.
You are brand new to the stock exchange, but you are not brand new to the business. Can you give us a broad view of how things have changed in the last 20 years, and what does that mean?
Martin: Yeah, it’s funny that you talk about, you know, your past. When I first started in the industry, I was writing code at IBM, and it was the late 90s. And I remember the first project that I was placed on, ironically, was for one of the custody banks, Pershing, and it was to look at how their systems performed on a peak NYSC processing day. I think the peak we were looking at was a million trades. That was the late ’90s.
Now, I think about, you know, what we’ve seen this year on a daily basis. We’ve seen half a trillion messages come into our platform. Those are buys, sells, and trades that occur on the platform. So, going from a million, in around 1998, trades, to half a trillion messages today, I think, you know, kind of puts a fine point on what the electronic trading revolution really has done to financial markets.
Murray: And Lynn, the question everybody wants to know: It has been a crazy year—we’ve seen, obviously everyone’s seen, a decline in the market, but the question everyone wants to know the answer to is, what happens next? Is the worst behind us? Are there more bad times ahead of us? And what does all that data that you’re seeing tell us about that question?
Martin: I think we would all like a crystal ball. We all would have. I would have liked it from, you know, the day I was announced as the 68th president of the exchange in December till now, really to give a sense as to what’s going to happen next. I think, you know, the big focus has really been on how our systems perform and how our markets have performed in spite of the increased messages and the increased volatility in the systems at a moment’s notice. And you know, the fact that the market infrastructure has performed so well, so resiliently, is, I think, a testament to not just the industry, but the investments that we’ve made in our technology.
McGirt: I want to circle back to just the sheer volume and the complexity of markets now. Feels like 1,000 years ago when I was writing about financial markets, and I was writing about it for the individual investor, for the consumer. Even though it was complicated, then you could—still the old joke is, get a stock tip from your taxi driver or your Uber driver, right? It felt like something that we could all sort of participate and be part of. And now the number of messages is staggering. But the number of products is also staggering, and complexity of the derivative markets. Where do you see the individual investor being able to access the wealth-building capacity of markets these days? How does that work?
Martin: Well, I think the really positive thing—and I’m probably going to harken back to at least the most recent job I had prior to this job, which is running ICE’s data services business and building that business out—is the amount of transparency that is at a person’s fingertips now has never really been seen before. So what is fair value, for example, on a fixed income security, a bond, which many of us hold as a diversification play in our portfolio? What is the stock market doing right now on a second-by-second, if not minute-by-minute, basis? That information is all at our fingertips and, more often than not, sitting on our devices that we’re glued to throughout the day. So if anything, the data elements that have continued to grow, continued to exist, have really improved the transparency and made diversification of one’s portfolio on the retail side a lot easier in that the investor, if they do their research, if they look for the information, they can find some really, really good pieces of information to help them take a more informed view, a longer-term view and a more diversified view.
Murray: Lynn, I warned you that I was going to ask about ESG—environmental and social investing—which has just exploded over the last couple of years. And you wrote a piece for Fortune back in January where you said ESG is only going to get bigger. It’s only going to continue to grow. But we’ve also seen, in the last few months, a kind of a pushback from a number of places. There are some attorneys general in states like Texas and West Virginia that are saying ESG is a political agenda, bad for our states. You have some editorial writers in the Wall Street Journal saying the same sort of thing. You have politicians like former Vice President Mike Pence attacking ESG. What’s going on there, and do you think it’s going to cause a pullback in ESG-focused investing?
Martin: I think if you think about ESG, just the letters it’s a big amorphous topic and people actually tend to think of it all as one thing when they are three very distinct things. There’s environmental, there’s social and governance. There are certain elements like good governance that really fold into that third pillar, just looking at things like diversity and looking at average board tenure and ensuring that people don’t have too much board representation. Not commenting on, you knowm what that number is. I think those types of principles are just generally good governance. They’re probably here to stay.
On the environmental side, there’s a lot of questions around climate and how climate change affects markets. Certainly it’s an area that we’ve been focused on at our parent company, at ICE and looking to see how we can take various climate statistics and tie that together to market data again, to just provide insights into the market, to provide transparency into the market.
I think people have different opinions on ESG investing. Some people think it’s good, some people think it’s not good. But that’s, again, what makes a market at the end of the day, two different views two different sides of a view equates to a buyer and a seller. So we’ll see over time how that evolves. But I think that things like climate change the effects on various instruments, assuming they’re measurable, as well as governance, those types of data inputs are going to be here to stay in investing strategies either in a pro or in a contra opinion.
Murray: Yeah, let’s stick with the climate piece of this because it really if you look at the last three years, the number of large companies on the market that have made Net Zero commitments for 2050 and talked about not only controlling their own emissions, but controlling scope three emissions, the emissions of the people who use their products, etc., it’s just skyrocketed, as you know, several 100% increase in those kinds of commitments. Do you see any sign that this political pushback is causing that to slow down or turnaround? In January you said it’s going to keep increasing. But has the pictured changed?
Martin: I think I think, you know, it’s an area of focus for every CEO I talk to every CFO I talk to there are investors that have a specific ESG lens that are continuing to ask public companies, you know, for more information, you know, I think what’s going to be most important is ensuring that information is bullet proof. So something like a scope three, that’s really really challenging for firms to measure, particularly if you look at some industries with a lot of third-party suppliers or resellers or whatever the case may be. So I think it’s more important that the information is right, than metrics that are forced to be put out into the market.
Murray: What is the New York Stock Exchange doing to help assure the quality of that data on environment and social metrics?
Martin: Yeah, I mean, so we’ve got a pretty robust ESG advisory practice. If I think about our ESG services, that’s exactly what they are—they’re services. They’re services that are here to help our CEOs and CFOs navigate this landscape. If you want to add diversity to your board, your management team, we have something called the Board Advisory Council, which is the output of it is a database of about 400 diverse candidates, all recommended by CEOs from our listing. It’s a pretty high bar for a referral in that database, which we share with our list of companies who, again are just looking to add diversity either to their board or their management teams.
Additionally, we have a database—it’s called our ESG reference data—is something that I built in my previous role and the way I like to describe that is the electronic ESG footprint of a firm. So what are they putting out in terms of disclosures, covers about 9700 public companies globally. It covers about 450 attributes. So things like what is someone putting out as scope one, scope two, scope three data? What’s the average board tenure? Uou know, are their child care, health care programs? Things like that, that we collect from a variety of sources. That enables our CEOs and CFOs to benchmark against their peer group.
First of all, look at their data that they’re putting out into the world and ensure that a data vendor is getting the underlying data, right, but then also go with their peer groups putting out into the world. Maybe a third party scoring that peer group higher or lower than them but it helps them inform what their path to the market from a sustainability perspective actually looks like.
So I think, you know, really summarized, we provide a lot of tools. That’s our mission is to continue to provide tools, continue to provide transparency but not offer opinions. We don’t offer scores. We don’t offer mandates, and it’s just something that’s not in our DNA.
McGirt: I’m just looking at some of the research I’ve done recently. ESG themed investment funds are not currently performing market benchmarks now. And they’re not even particularly good ESG even if I think researchers at Columbia and LSE found that ESG rated companies had tended to have poor labor and environmental records at the moment but I know this is all evolving. So to build on that, your response. What are you hearing from the CEOs and CFOs? How do you rank what their concerns are and where they need to start? Because I think for lots of companies, this is this is a fraught moment. What do you share? What don’t you share? What happens if you’re called out? You know, this is this is both a data driven but a leadership moment.
Martin: Yep. Yeah. And like I said, it is at the forefront of the CEOs that that I spend time with in our listed community, which is, you know, a robust group of CEOs. I’d say probably the first area that they focus on, and a lot of them have have made significant progress here is really diversity and ensuring that they have diverse leadership teams and diverse boards. But because they’re so thoughtful, I don’t think it’s a mistake that our companies tend to outperform companies listed on other venues. More than 95% of our companies have at least two female directors on their board, and more than 90% of our list of companies have more than 20% female representation on their board. So I think that really speaks to the fact that our CEOs know where they want to go. They just sometimes need a little bit of help in how to get there.
Okay, wait, I don’t want to create a fight here. But you talked about some of the other exchanges. The NASDAQ is a principal competitor of yours and the head of the NASDAQ has made a point of diversity on board. So are you saying your numbers show that your boards are more diverse than NASDAQ boards?
You know, I can’t necessarily comment on NASDAQ. I’m just really proud of the performance of our companies.
Murray: Okay, I just I just wanted to was doing a little fact check.
McGirt: On the off chance you were willing to take the bait, he thought he would try.
Murray: All right, Ellen, I’m sorry. I retreat.
McGirt: I want to ask also about the human side of this. Yes, we do spend quite a bit of time on what does it mean to lead now and what does it mean, to not know to be a CEO CFO, a board member who simply does not know exactly where to go, but they know they have to do something. And in your advisory capacity but also in the fact that you are also a seasoned leader who is talking to other leaders. How do you see the human side of the leadership that needs to happen now playing out?
Martin: Yeah, I mean, the role of the CEO is it’s really an interesting role at the moment because they do have to take a leadership position in a lot of issues that I’m sure many of them had never thought that to take a leadership position in when they took their jobs. You know, I think that’s part of being a leader though. When you look at the capital that comes along with a company, the true value of a company is in its patent portfolio, but it’s also in its team, in its human capital. And that’s really what makes companies great, the human capital behind the leader and are they all executing on cohesive strategy? Are they thinking outside the box? Are they executing to deliver positive shareholder returns? All rowing in the same direction? And, you know, CEOs, part of their job is to continue to work with that part of their organizations. So it’s a really interesting time for the CEOs having to lead not just focused on the business but continuing to focus on the human side of the business. I think it’s something that’s been uniquely come to the forefront as a result of the pandemic and you know, with the whole work from home debate, with the whole healthcare debate, vaccines, all of that stuff, making sure that their teams were able to get the services that they need. It’s just a really interesting time for CEOs.
Murray: It’s such an important point, Lynn, and it’s what we talked about a lot here on Leadership Next. It’s just a very different world for leaders when human capital is the primary source of value. You have to lead differently, think differently than perhaps you did in the days when physical capital and financial capital were the principal source of value. I wonder from your perspective, in this job, I mean, you’ve been there for what, six or seven months now? What’s the biggest surprise about the leadership challenges you face? How is it different than what you expected? And what have you learned?
Martin: Ah, that’s an interesting question. I think from a leadership perspective, it’s been certainly an interesting year. Particularly if I looked at the effects on our business. I wasn’t aware that there was going to be a war when I took the position. All the volatility and market forces…this goes back to the crystal ball that you asked about earlier in the in the conversation. You know, there’s just been so much volatility in markets, and we’ve had to pivot as to the focus areas so frequently throughout the course of the year and the team has more than risen to the challenge. You know, sometimes the focus is on those companies that are private looking to come public and then quickly, you got to turn to okay, the Dow is down 1100 points or it’s up 700 points or it’s doing both in the course of a day and what does that mean for system capacity and things of that nature. So I think the constant changing of priorities at such a rapid pace was something that probably the team hasn’t experienced in quite some time.
Murray: I’m here with Joe Ucuzoglu, the CEO of Deloitte US and the sponsor of this podcast for all three of its seasons. Thank you for that, Joe.
Joe Ucuzoglu: Pleasure to be here, Alan.
Murray: Joe, business is facing so many challenges these days, the continued pandemic, the battle for talent supply chain problems, rising inflation and now, on top of all of that, war in Europe. How are companies responding to all this disruption?
Ucuzoglu: Alan, you’re seeing a remarkable level of optimism in the face of so many varied challenges. And by and large, I’d attribute that to a recognition that this is just the new normal, the constant curveballs that will be thrown at us. But at the same time, given how successfully so many of these organizations have navigated through these things over the past couple of years, a growing confidence that we’ll be able to continue to navigate the issues that get thrown at us and grow our businesses. But to do that, we are absolutely seeing a new brand of leadership emerge, grounded in resilience, in agility, in a learning mindset. These are the most important leadership attributes in an environment where we should just expect that change and disruption are going to be at a consistently high level of intensity.
Murray: The problems aren’t going away, Joe, right? You have to manage through them.
Ucuzoglu: A CEO said to me recently that if you put together a list of the top 20 risks one week, something big is going to hit the next week, and it probably isn’t even on that list. That’s just a reflection of the number of different phenomena in the world right now and the level of complexity that businesses are managing through.
Murray: Joe, thank you.
Ucuzoglu: Alan, It’s a real pleasure.
McGirt: So take us back to the early days of your life where you were a girl from Long Island who loved math. Were there key moments in your life where you were seen or invested in in an interesting way that kept you moving along? Because even though we’ve seen a lot of breakthroughs—we mentioned NASDAQ earlier in in women leading important financial institutions—we’re not there yet. So you still are a bit of a trailblazer. How’d you get here?
Martin: I mean, I do think there are a tremendous amount of amazing women who are leading organizations and I’m hopeful that there’ll be more and more amazing women leading organizations as we progress over the next three years, five years, 10 years. But to answer your question, you know, I think it came down to for myself personally, different teachers that took interest in me at different points in my educational cycle really became apparent when I was in college. When I was double majoring in computer science and math and the math teachers wanted me to drop computer science and focus on math and the computer science teachers were like no, you have to keep computer science drop math. So it really, I guess, made me feel good and made me feel like you know, the path that I’m on is the right path.
But then when I entered the workforce, I was fortunate to have a variety of mentors and sponsors, some of which I don’t think would classify themselves as mentors or sponsors. Like I remember when I was at IBM, the first larger project I had, the project executive on it was just amazing. And she’s put Post-its on my laptop when we were consulting on a Y2K project, with like, just helpful management reminders like things like “can never over communicate.” And, you know, those types of things kind of stuck with me that there was this woman who was leading such a massive team that just took an interest in, in me, personally, that just kept me going and that that has really persisted throughout my career.
People haven’t been afraid to give me challenges, which I’ve been very lucky that people haven’t been afraid to to give me those challenges. And it’s why sometimes I will offer different challenges , outside the box challenges to people who I manage. It’s actually one of my favorite things to do, to say, I’ve got a new role and have someone look at me “Why am I the right person for this role?” And that that, by the way, could be a man or a woman and me going through the thought process as to why I think they’re the right fit for something that’s outside their comfort zone, but I know is going to expand them professionally.
Murray: Lynn there have been times along the way as a computer scientist where you looked around the room and saw that you were the only woman sitting at the table. I mean, it was the nature of the of the trade.
Martin: You just described my entire college career. I think there were two of us in my major. There were two females and one was double majoring in education.
Murray: So how did you think about that? How did you deal with that? Or did you just ignore it?
Martin: I ignored it in some ways. I mean, I wasn’t, I was I was there to learn. I had my friend group outside of my class load and in some respects it didn’t, the fact that I didn’t have a tremendous amount of female friends distracting me in class made me better in class. So it just is something that I didn’t spend a lot of time thinking about other than to look around the room and say, really? There’s no one else like me in this class?
McGirt: Good for you. Before we let you go. I wanted to go back just sort of from a philosophical point of view on the complexity of the markets and not just as individual investors, but people who live in society and have to vote and have to think about how things work. It’s it’s very hard to see a financial meltdown coming. I think there’s still lots of people trying to sort out what happened in 2008 and 2009 and hit the derivatives at the housing markets and all kinds of ways that were both universal and felt very personal to lots of people. How do you recommend that people think about financial markets and the role that they play in our lives and to be good external stewards of that to the degree to which we can?
So I think one of the very positive things that came out of the financial crisis is having more products centrally cleared. I spent time running a clearing house throughout my career, so I can’t begin to stress the importance of having those central counterparties to match buyers and sellers. To be the buyer to every seller to seller to every buyer, because they are the ones who are ensuring that there is good settlement. So as I look at financial instruments in general, those with a robust regulatory framework, those that are on exchange, those that are centrally cleared, those are the transparent ones. Those are the ones that are investment quality, I guess is probably the way I think about it.
So when people talk to me at different asset classes, I like to say you know, once there is regulation around those asset classes, you understand the guard rules, you understand the rules. You typically don’t want to go into a game that you don’t understand the rules of and the most regulated markets in the world be the derivatives that are on exchange the exchange traded derivatives, as well as the centrally cleared derivatives plus the entirety of the US equity markets plus the entirety of the fixed income markets globally, equity markets globally that are public. I mean, those are all really transparent and centrally managed, and there’s a buyer to every seller and seller to every buyer. There will probably be in all of those markets, technological innovation, which is a good thing. Technological innovation around those markets is what has decreased spreads and increased transparency all to the benefit of the investor. But it’s really important that there’s a strong regulatory framework.
Murray: Lynn Martin, such a great conversation. Thank you so much for taking the time to be with us. We want you to go back to your job with the New York Stock Exchange and tell mister market to move up. Some of us are getting close to retirement. Not Ellen.
Martin: I will absolutely do my best. Thank you.
Leadership Next is edited by Nicole Vergalla, written by me, Alan Murray, along with my amazing colleagues, Ellen McGirt and Megan Arnold. Our theme is by Jason Snell. Executive producers are Mason Cohn and Megan Arnold. Leadership Next is a production of Fortune Media. Leadership Next episodes are produced by Fortune‘s editorial team.
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