Over the previous years at Nasdaq, I had naturally developed a public profile in the financial universe. I was a regular on financial channels like CNBC and Bloomberg. Occasionally, I would appear on more general-interest shows or in the print media. Still, I was far from a recognized public figure. I tried to do my part as the public face of a global brand, but I didn’t seek out the limelight. But now I had become the infamous CEO at the center of the media furor. Colleagues were questioning my leadership. Pundits were calling for my head. I made the New York Post’s “loser of the week” column—always a reliable sign of momentary infamy. Inevitably it would pass, but it was important to come out on the other side of the tempest with minimal damage to Nasdaq’s brand.
My inclination as CEO was to dive into figuring out what happened and fixing the problem, and block out all other distractions. But I couldn’t entirely do that. In fact, we had to do dozens of things at once—not least of which was manage the media and the public relations fallout from the event as best we could. Complicating matters was that the team around me was in a period of transition. For example, we were in the process of seeking a new SVP of Communications—a rather critical role in this situation. Jeremy Skule would soon fill the position, and do a fantastic job, but that was still many months away.
In consultation with my communications team, I decided that I should do a major interview. We chose Maria Bartiromo, then at CNBC. Popular and ubiquitous on the business channel, she had a reputation for balanced interviews. She wasn’t a journalist who was just looking for “gotcha!” points. We hoped she would provide a forum in which I could clearly explain our efforts to respond to problems of the IPO and make our customers whole. We held the interview at MarketSite. Bartiromo and I knew each other, and so as we sat down together, there was a sense of familiarity, even friendship. But that quickly changed as the cameras rolled.
“Where were you, Bob? Who was in charge?” she challenged me right off the bat.
It wasn’t an easy interview. She implied that our response was too little, too late. Quoting NYSE’s PR, she listed their problems with our approach, and suggested they might have done better.
Still, she asked fair questions and gave me the opportunity to respond. That was all we could ask. It was the one interview in my life where I knew everyone in the business, all of my friends, colleagues, and competitors, was watching—to see how Nasdaq would respond, and to see how I would handle the moment. It was important to be frank and responsive, defend the company but not be defensive, apologize for our missteps but limit our circle of liability, be forthright, responsible, and forward-looking, but also apologetic and empathetic. Oh, and not to say anything that would further complicate our media situation or legal liability—you know, just your everyday conversation.
Her final question was one of the toughest: “Is anybody’s job on the line? Whose head is going to roll over this?” She paused, then continued. “Is your job on the line, Bob?”
“That’s not for me to say,” I responded. “But I think my track record speaks for itself. This was not a high point for us; it was a low point. But we’re going to be a better company as a result of it.”
Honestly, I never really felt like my job was on the line. I had a supportive Board, and while no one was happy with the situation, they weren’t out for blood—at least not mine. Ed Knight had some good advice for me during those difficult days. “Keep the pressure on yourself,” he suggested. “That keeps pressure off of everyone else, including the Board of Directors. It’s when the Board itself is being publicly shamed or called out, when they feel direct pressure, that the CEO gets in trouble.”
So I tried to be the public face of this mistake and take the heat. It just seemed the right thing to do—strategically, organizationally, and most important, ethically. Sooner or later, the media would move on, the Facebook IPO would fade from the headlines, and I could go back to spending all of my time responding to the internal issues that were revealed as a result of this failure.
A Good-Luck Charm
A few weeks after the original incident, I was sitting in my office one Monday morning when my assistant announced that Adena Friedman was in the building and asking to see me. As CFO of the Carlyle Group, Adena spent most of her time in Washington, DC, these days, but we would occasionally get together when she was in New York. This visit was unexpected, however.
Adena walked into the office with a friendly and sympathetic expression. “I just wanted to stop in and say hello. I can only imagine what it’s been like the last few weeks around here.”
She was just there to offer her support. After all, she had worked at Nasdaq for almost twenty years, and nearly a decade under me. Even at Carlyle, she had felt the trauma of Nasdaq’s public shaming. After several weeks of disaster management, long days, endless public relations strategizing, and getting battered by prognosticators and pundits in the media, it was nice to see a friendly face with no problem to solve or ax to grind. As we briefly caught up with each other’s lives, the drama of the ongoing fallout from Facebook momentarily faded. After a few minutes, Adena got up to leave.
“Before I go, I had something I wanted to give you.” She reached into her pocket and pulled out a small four-leaf clover. “I picked this at my son’s Little League baseball game over the weekend. I thought you could use it.” She laid it on the desk and walked to the door before she turned and said, “Good luck with everything.”
I was surprised and touched by the sweet gesture. I could imagine Adena—powerful CFO of one of the biggest private equity companies in the world—sitting for hours and hours on a weekend watching her son play baseball. I knew one of her natural talents was pattern recognition. There she was, one eye on the game, and all of those IQ points looking for an outlet on a summer day at the park. What better opportunity for a momentary distraction than looking for patterns in the clover patch? And how thoughtful that she would save one as a good-luck charm for me.
As with several of my former executives, Adena and I had formed a bond in the midst of our working life at Nasdaq that endured after she was gone. This was actually common with my teams at Nasdaq. Even today, I regularly spend time with old colleagues who spent time in Nasdaq’s executive suites. People often talk about the competitive dynamics of business, and that is certainly part of the story, but in my experience it’s the collaborative bonds that are memorable and lasting. I believe this was especially true for those of us who shared the intensity of Nasdaq’s years of upheaval and change.
Though she had moved away from Nasdaq, Adena was still a favored daughter of the exchange, and I continued to hope that a time would come when I would reach out and invite her to rejoin Nasdaq. But such thinking was for another time and place. Now wasn’t the time to contemplate who was already gone, and their future. The question for the moment was: Should I add anyone’s name to the departure list?
Taking the Fall
Who was really to blame for the Facebook fiasco? To a significant degree, I saw the culture created in my Nasdaq engineering team as being responsible for the troubles we ran into with the IPO. Indeed, my übertalented development team had decided to make the perfect the enemy of the good. But that didn’t mean that there was a natural person to let go. It would have been easy if there had been malfeasance, or even incompetence, but no one came to work at Nasdaq looking to do harm, and the troubles of the IPO couldn’t really be blamed on incompetence.
I relearned a critical lesson on the day of the Facebook IPO—the right approach at one moment is not necessarily the right approach at another moment. Nasdaq’s development team had been forged during the ECN wars of the early decade, running lean and fast, almost like a startup. With my blessing, after the Instinet acquisition, they had largely left behind Nasdaq’s previous IT culture, the every-change-to-code-must-be-signed-in-triplicate-by-three-departments approach of the previous era. The times had demanded it. It was also an era built around efficiency, as we beat back the bloat that had
once been too common in Nasdaq’s halls. But the business environment was now changing. The existential threat was greatly reduced, and the fundamental restructuring of the equities industry based on electronic trading had largely run its course. Once again, stability was taking precedence over speed in Nasdaq’s transactions business.
However, institutions, like organisms, tend toward a certain inertia, meaning that without new input, they will mostly continue on an established trajectory, unless something—usually a crisis—jolts the system into a new direction. My initial arrival at Nasdaq in 2003 was a jolt that had changed the trajectory of the entire company. To a lesser extent, Facebook was another.
I had helped to create an engineering-friendly culture and placed enormous trust in developer hands. I don’t regret it. Nasdaq was immensely better off because of it, and we were able to stay ahead of a market in transition. But now we were in a different part of the business cycle. We were no longer under immediate threat from falling behind technologically, but another PR disaster would be just as threatening. The pressure of technological evolution was now cutting the other way—toward a more conservative approach. My trust-the-developers culture met its Waterloo in the Facebook IPO. We had to evolve again, and quickly.
At the time, I was acutely aware of the peril we were in as an organization. For months afterward, I felt like I was walking on eggshells. We might have weathered the Facebook storm, but another high-profile issue could have multiplier effects that would be disastrous. We had to avoid that at all costs. Not only did we have our own exchange to worry about; we provided the software that essentially ran ninety different exchanges around the planet! We were updating that code all of the time. Were there further surprises lurking out there, hidden away by our well-meaning engineering teams? Moreover, some of our customers ran their systems fast and loose. But I knew who would be blamed if something went wrong—especially during this period. Whatever reservoir of goodwill we had developed over the years was momentarily depleted by the Facebook IPO crisis. We needed to be perfect, even in a world where computers and software never are.
I offered a companywide “amnesty” to our engineering teams. If anyone was aware of any code lurking in our systems that might now seem problematic in light of recent events, I announced, please tell us immediately. I wanted to make sure we had complete disclosure of any potential issues. Full absolution would be granted for all such confessions.
Still, should anyone take the fall for Facebook? Given the engineering team’s role in the debacle, the natural person was the leader of that group. But as I considered the question, I realized that this was not a sin of incompetence; it was ultimately a sin of culture. And as I have often said, culture comes from the top. I’m not saying that person was blameless, but neither was I, and that was the point. After all, I had encouraged the culture that allowed this failure. It seemed disingenuous to ignore that inconvenient truth. I knew we needed meaningful changes to our technology team and our engineering culture, but I thought we could get some new blood in the door without spilling more of our own. So after the media storm had died down, I began a search for a new executive who could lead our post-Facebook revamp.
We needed to get outside of our own box for answers. We asked IBM to perform a system-wide audit of our IT situation. An external perspective was critical. In general, we didn’t use a lot of consultants. I took to heart the old joke that you hire a consultant to tell you what time it is, and they look at your watch to give you the answer. But in this case that was exactly what we needed: third-party validation. IBM was thorough, and they gave us a comprehensive report, analyzing how we did everything and making suggestions for improvement. We already knew almost everything they would say, but nevertheless it was useful, and it helped us move forward.
I also spent time with my executive team carefully thinking about system reliability. We lived in a business environment where the expectation was that we be 100 percent reliable. But software systems never are. Every few weeks, we learn of a major corporate system undergoing a dramatic failure. So how do you negotiate those expectations of perfection in the noticeably imperfect world of technology? As part of our process, the Nasdaq team studied other industries where reliability is absolutely paramount. We adopted some of the practices of the telecommunications industry and also the airline industry, where system confidence is a life-or-death matter.
For years, our system had achieved high reliability—approaching 99.99 percent. That sounds impressive, and it is, but while “four nines” is nice, it’s the fifth one (99.999) that gets you close to zero breakdowns. But to get to five nines, you’re talking about a system that is so locked down it becomes almost impossible to innovate and compete. While I was ready to embrace a more conservative approach to our IT systems, I was also aware that there were still trade-offs involved. If our future IT regime decided to lock things down too much, Nasdaq’s own technological innovation would stall. That wasn’t the threat that it might have been in the previous decade, and certainly not the immediate concern, but it still could prove problematic down the line. If anything, we were becoming more of a technology company, not less of one. We might not have needed the speed and nimbleness of our prior incarnation, but we still needed to innovate and lead the market if we were going to thrive.
By the end of 2012, my search for new IT talent had settled on two potential hires. One was at a European bank. He was professional, buttoned-down, and had a regimented, formal, conservative persona. He was just what the doctor ordered for the immediate needs of our situation. But as I considered the hire, I was concerned that despite the expertise that he would bring to the job, there was a longer-term horizon that I needed to consider. I didn’t want to fall into the trap of fighting the last battle. This was a few months later, and the fog of Facebook was beginning to lift. I worried that if I hired this person, it would solve one problem but create another down the line. How to bring in a more conservative mandate and an innovative spirit at the same time? Somehow I needed to find an individual who could move between these dual mandates with both a dancer’s grace and a soldier’s gait.
Enter Brad Peterson. He had been CIO of Charles Schwab and before that eBay—giving him a background in both finance and Silicon Valley. I suspected Brad might not be the buttoned-down type when he showed up to an interview in jeans. In his defense, it was a Saturday, so I pressed on:
“Why are you interested in the job?” I began.
“I’m not really interested in the job,” he replied bluntly.
“And yet, you’re here,” I replied after a moment, slightly confused.
As it turns out, he had agreed to the last-minute interview without having time to truly consider it. It was a strange start to the conversation, but as we continued to talk, I began to warm up to this bright, interesting technology executive with a West Coast vibe. At one point he asked me directly, “What do you think went wrong with the Facebook IPO?”
I responded, “You may not like this answer, but our technology development team had too much power, and if you come here, that’s got to change.”
Brad wasn’t fazed. We spoke for a couple of hours about technology, business, finance, and the history of Nasdaq. I sensed he was a creative thinker, someone who might not only be able to fix what ailed us but also shape the next generation of our technology platforms. By the end of that conversation, I knew that Nasdaq had found its future CIO.
The Long-Term Fallout
Two years later, Brad and I sat in a conference room in Hong Kong with Joe Tsai, cofounder and Executive Vice Chairman of Alibaba, discussing their impending IPO. Alibaba was the biggest Chinese IPO ever and the most sought after since Facebook. Glenn Hutchins, my negotiating friend from the INET deal, was on the Board of Nasdaq and had connections to Tsai, and he joined the meeting. Börje Ekholm, former head of Investor AB and current Chairman of the Nasdaq Board, came along as well. Tsai had once worked for Ekholm, and would later put him on the Alibaba Board. In othe
r words, our connections with Alibaba ran deep. Normally, this all-star team would have boosted my confidence that we could win the day. But nothing was normal post-Facebook when it came to winning big IPOs.
That day at Alibaba, as Brad walked all of us through Nasdaq’s new, radically simplified IPO process (it was now only about sixty lines of code), I knew that we had put to bed the internal technical issues that led to the Facebook debacle. I was confident that the technological and cultural changes in our engineering teams were upgrading the organization on many levels. But that was only one part of the story. We also had worked hard to regain the industry reputation and momentum that we had pre-Facebook. Thankfully, memories can be short in business, and most new technology companies considering IPOs weren’t concerned about what had happened with Facebook. We won lots of new IPOs in 2013 and 2014, and much of the noise of the disaster quickly faded. But one issue remained. Bankers have a longer memory than technologists, and unfortunately, their opinions mattered more with the big IPOs, like Alibaba. Despite our efforts in Hong Kong, we lost the Alibaba IPO, and it wasn’t because of Joe Tsai or Jack Ma. It was pressure from the banks and IPO underwriters, many of whom were pushing big clients like Alibaba toward NYSE, “just to be safe.”
As our team considered what had happened with the loss of Alibaba, we radically revamped the nontechnical side of our IPO process as well. It was the last step on the journey that began that morning at One Hacker Way. We approached it from a customer-service perspective, speaking to the banks and asking what they would like to see us implement as part of the service. Some of this was an evolution of our thinking—from identifying as an exchange to thinking of ourselves as a tech company. Exchanges have member institutions who trade on their systems and are primarily concerned with lower costs. Technology companies have products and software services, and the customer experience is paramount. We began to think of the IPO process as belonging in the latter category. I even moved responsibility for IPOs out of the transactions business into the Corporate Client Group (listings), an important step.
Market Mover Page 20