Speaking of Money

Too many people are afraid to talk about money, says Ariel Capital Management’s Mellody Hobson. She thinks it’s time for business to bring the “M” word into dinner-table conversations—and teach everyone how to make it, save it, and invest it for the future.
Speaking of Money

Money. It’s not a dirty word, but far too many people think it is, says Mellody Hobson. “Capitalism is too often equated with being evil,” says the 36-year-old president of Ariel Capital Management, a Chicago-based investment firm. “People often look at what we do and think of the line from the movie ‘Wall Street,’ when Michael Douglas says, ‘Greed is good.’ But that’s not what money’s about.”

Helping people understand and manage their money has become Hobson’s passion, albeit an unexpected one. She graduated in 1991 with a degree in international relations from Princeton University’s Woodrow Wilson School of International Relations. It was only after a sophomore-year internship at Ariel that Hobson fell in love with investment. She found a close mentor and friend in Ariel’s CEO and founder, John Rogers, and realized that Ariel was where she wanted to work for the rest of her career. After she graduated, she worked with Ariel as a marketing representative before moving up the ranks first to vice president, then to senior vice president. In 2000, she assumed the role of president before she was 31 years old. Today, Ariel’s “slow and steady wins the race” motto—symbolized by the tortoise it uses as its mascot—has helped it grow its clients’ assets to more than $18 billion and become one of the largest minority-owned investment firms in the U.S.

As a successful, young African American woman working as a senior executive in the finance industry, Hobson has not gone unnoticed. She has been featured in Vogue and Working Woman and, in 2001, was named a Global Leader of Tomorrow by the World Economic Forum. She has been singled out as one of “America’s Best and Brightest” new leaders by Esquire magazine and as one of Fortune’s 25 under-40 “Next-Generation Global Leaders.” Last year, she was among The Wall Street Journal’s “Top 50 Women to Watch.” But Hobson quickly credits her success to a simple recipe that any business school graduate can follow: Work for people you respect, in a business you love, with a commitment to helping others.

Hobson would like to put an end to deeply rooted negative perceptions surrounding money, which she sees reinforced by the media, corporate and Wall Street scandals, and the conspicuous consumption often equated with wealth. To counter these perceptions, Hobson works to spread the message that investing is for everyone, at all socioeconomic levels. As a regular financial contributor to the morning television program “Good Morning America,” for instance, she educates millions about their finances. At Ariel, she supports and develops the company’s strong commitment to community service programs, including the Ariel Community Academy, which teaches inner city children about money and investing when they are young, so that they can grow up to be financially savvy and secure adults.

“I think money itself is generally not fully understood,” Hobson says. “Money isn’t more valuable than life or happiness, but it gives people freedom. And if you’re free, you have choices. That’s the best thing in the world.” Hobson hopes to see more efforts by the business community to educate the public and open up a national discussion about investing. Only then, she says, will people at all economic levels understand—and benefit from—the power of money.

You studied international relations and public policy at Princeton, but soon realized that investment was your true calling. What most attracted you to this career?
I liked the idea that the business day in this industry isn’t static— I deal with so many different constituents and situations. And I liked the fact that I’m helping to make people’s lives better. The one great thing about our work is that we’re helping people grow their money, which for them ultimately means a better retirement, a better house, a better inheritance to leave their children. I think that really is a noble calling.

How do you think having an education in international relations, rather than business, influenced your career?
My work at the Woodrow Wilson School was all about solving problems on a large scale—world problems. Some of the issues we looked at were so gigantic, they were almost overwhelming; yet we were not let off the hook just because they were big. We learned to take them in small bites and slowly chip away at them. That exercise made me mentally pragmatic and a quick thinker. Once you know how to solve the big problems, you can apply those skills to everything and anything.

Do you believe that the business school graduates who apply to work at Ariel have been adequately prepared to solve large-scale problems?
We hire many business school students who are terrific and hard-working—they do a great job. That said, though, some also rely too often on formulaic approaches instead of independent thought. They lean on conventional methods they’ve used before or read about in a case study and then try to replicate them in situations where originality is required. But even though case studies may apply to certain situations that follow the same scenario, they can’t become the bible of how people think and work.

I’ve also found that some business students I’ve interviewed make a correlation between judgment and education. They often presume they have great judgment because they have so much education. But I’ve found no such correlation. In fact, you can’t evaluate your own judgment until you’re totally in the thick of it, until you’re in a situation where all the case studies and hypotheticals simply don’t work.

By most anyone’s measure, you’ve reached a high degree of success at a very young age. How would you advise business students who want to follow in your footsteps?
I would tell business students that success depends on how hard they’re willing to work. I didn’t have any other demands on myself; I didn’t have any children or a spouse to worry about, so I had the freedom to pursue my career at Ariel in a very aggressive way. I made myself available, volunteering to take the assignments that no one else wanted. My mother always told me that the most successful people always make themselves indispensable, so people don’t know how they’d live without you. 

You’ve described a classic dilemma of many women in business who believe they must choose between career and family. If you had had a family, do you think you would have been less aggressive in your career?
I think in life you always have to make choices. Even so, there are smart ways to run your life and get things done, with or without children. I work with women who are mothers, who are also top performers and incredibly successful here at Ariel. These women are very organized and they work hard. They haven’t, from my perspective, sacrificed their careers. They’ve been able to achieve the best of both worlds. I’m sure it wasn’t easy and I’m sure there were times certain things had to give, but they show it can be done. I don’t see having a family as a reason for not achieving professional success.

Women are still underrepresented in the upper echelons of business. The statistics show that women are entrepreneurs in great numbers, but many don’t pursue corporate careers. Do you think there’s a barrier, or is it a matter of choice?
Women want to see role models in business to show us what is possible. If traditional corporate environments can’t show us that, because they lack diversity or lack women in their senior ranks, we don’t want to be there. We vote with our feet. I think one reason so many women become entrepreneurs is that we see greater opportunity doing it ourselves.

In the finance and investment industries specifically, women still have these issues with numbers and money. At Ariel, we work with women all the time who are extraordinarily successful and wealthy. Yet when we sit down with them, they tell us how uncomfortable they are with money. That’s something that must change over time. I compare it to Title IX, which encouraged girls in the U.S. to participate in sports. I went to school before Title IX, when girls’ sports weren’t a big deal. Today, when I see girls participating in soccer and hockey and basketball, I think of how much I wish I’d had that experience. I’m confident that something similar will happen with women in the financial arena. These things happen gradually over time, until the barriers break down because someone kicked down the door.

You noted you wanted to spend the rest of your career at Ariel. That kind of commitment is unusual in this era when most people job-hop to get a larger paycheck or a better title. Were you just lucky to find the right place? Can business students expect to find such a perfect fit?
I don’t think it’s about expecting anything. Students have to search for the perfect fit and not compromise on it. It’s mind-boggling to me what people will do for money. Life is too short to work for people you don’t like just because they pay you a lot of money. It all comes down to what you demand of your life, and what you demand from the people you surround yourself with.

I once read a survey that asked people why they shopped at particular grocery stores. Price was actually not the No. 1 reason. Location was No. 1, cleanliness of the store was No. 2, produce was No. 3—price was No. 5. That’s how I feel about my work. When I look at why I like my job at Ariel, the quality of the people is No. 1 on my list; the meaningfulness of the work is No. 2; personal satisfaction and fulfillment, No. 3. What you payme is way down the list.When students interview with Ariel, they should ask me about those aspects of the job, not split hairs with me over a few thousand dollars in salary.

Many women don’t have mentors in business, but you were able to find a very close mentor in John Rogers. What’s the best advice you’ve ever gotten from him?
On my first day at work at Ariel, John took me to lunch and he told me two things. First, he said, “Write the check.” He meant that if someone asks for your help, give it even if it hurts. Always be generous. And, second, he said, “Don’t rely on titles as a way of assessing skill, intelligence, or judgment.” He told me that there would always be people with very big titles who aren’t very good at what they do. I was only 22 years old, but he was telling me that I shouldn’t assume just because I was the new kid, that I might not have a better idea. He wanted me to assess talent based on what really matters, not on what someone’s business card says.

We need to work to get investing into the national discussion in a much more meaningful way—it needs to be discussed around every dinner table. If we don’t, we’re going to have serious issues down the road.

Ariel focuses on a small number of small- and midcap stocks—only 71 stocks in four mutual funds— which illustrates the company’s “slow and steady wins the race” motto. When you bring on new hires, fresh out of business school, are they easy to win over to that mindset?
We look for people who will fit in Ariel’s culture, not people who just give us the answers we want to hear. Applicants go through an extensive interview process, and those we hire then go through a very extensive orientation process that we call the “first 100 days.” During that time, we train them in our way of thinking and unteach some things they have learned that do not line up with our strategy. We have to push them to reject conventional thinking and conventional wisdom.

What happens in those first 100 days?
There’s full immersion. New hires are basically on a listening tour, learning how things work. During those first 100 days, we ask new employees to “learn where to go when they don’t know.” We don’t care if they have the right answers— we want to know they know where to go to get them. For example, we have an Internet-based orientation program that ends with a scavenger hunt, instead of a test. We decided that we didn’t want to give employees a test filled with questions where the answer was right or wrong, pass or fail. We wanted each new employee to learn that the most important thing is to know where to go for information.

That’s somewhat different from business school, where students are often taught to find the “right answer.” Sometimes there is a right answer, but they should also know there are right people to question. That’s one of the best ways they can get the information they need to make the most informed decisions.

Ariel received the Mutual Fund Education Alliance’s Community Investment Award in 2004 and focuses a great deal on improving Chicago neighborhoods through active community involvement. Why does Ariel place such a high emphasis on local community service?
Because John Rogers has created a legacy that life is bigger than the individual—it’s more than just a bigger paycheck, or more square footage, or another designer suit. If we work to make society a better place, it’s so much more fulfilling. We want to have people working here who also believe in that goal.

For instance, at Ariel we include community service as a factor in our employees’ performance reviews. I remember one review when the employee said to me, “I don’t understand why I’m reviewed on community service. All that should matter is that I do my job well. You have to explain this to me.” And I said, “If I have to explain this to you, we have a problem.” At that point, I knew it wasn’t going to work.

Business schools often reach out to high schools as a way to get more young people interested in business. But you’ve noted that might be too late. What do you think needs to be done to reach children early enough to make a difference when they’re adults?
I still can’t believe that children don’t learn about investing in school in America. Schools have wood shop class and home economics class, but no investment class! Yet these same students graduate from high school and college and get a job, where they’re handed the keys to their financial futures when they select their 401(k) plan options. If they didn’t grow up in a home where the stock market was discussed—and many minority students haven’t—they’re in trouble.

We need to teach investing in all schools. Parents and teachers have to learn these issues as well. This is why we started the Ariel Community Academy and why we send a newsletter to the parents twice a year. And next week I’m doing an investment seminar for the parents of our school kids. I’ve been toying with writing a book about children and money. It’s one of the most uncomfortable areas for parents to deal with—it has been documented that parents dread conversations with their kids about money more than they dread conversations about sex or drugs.

Also, I don’t know if you’ve noticed, but on television shows and in movies, you don’t see any kind of reference to investing. Think of how often sports are discussed or portrayed on sitcoms, but there’s nothing about investing. When you think about basic product placements or conversations on television, there might be a random acknowledgement of the stock market, but nothing really meaningful. We need to work to get investing into the national discussion in a much more meaningful way—it needs to be discussed around every dinner table. If we don’t, we’re going to have serious issues down the road as companies get rid of their pension plans and as more people job-hop. This idea of being able to retire with a pension is gone, so people have to know how to make financial decisions.

In 2004, Ariel and Charles Schwab released a survey that found 68 percent of blacks invest money in the stock market, compared to 80 percent of whites. Why is the black community generally reluctant to invest?
Our research shows that there are five reasons African Americans do not invest on par with our white counterparts. The first reason is knowledge—two-thirds say they don’t invest because they don’t know enough about it. The second reason is trust—many say they’re skeptical about the stock market and about people in the industry. The third reason is misinformation—many believe they won’t have access to their money or that there will be penalties if they withdraw it. The fourth reason is basic cultural differences—we tend to be more conservative than our white counterparts, so we favor purchasing real estate and insurance, rather than investing in the stock market.

Finally, we have an exposure issue. Many of us did not grow up in homes where the stock market was discussed. We don’t know people who work in the financial sector because of the lack of diversity in our industry, and we often don’t inherit money.

How is Ariel trying to change that?
Every year, Ariel and Charles Schwab conduct a survey of the black community and heavily publicize the results. We want it to be a wakeup call, not just for black America but for all America. We want everyone to realize that if this issue isn’t addressed, it won’t just be a “black problem”—it will be everyone’s problem. After having worked to break into the middle and upper classes, we won’t be able to retire comfortably, because we didn’t adequately prepare. We’ll find ourselves stepping back into poverty, becoming a burden on society. We do this survey as one way to effect change.

Beyond that, we speak extensively around the country on the topic of saving and investing, often directly to minority audiences. Our Academy school is probably 100 percent African American. We’ve also been very active on Capitol Hill, talking about this issue with our representatives in Congress to let them know that the discussions around privatization of Social Security and saving for retirement have to be considered through the minority lens. It shouldn’t be viewed through just a national lens, which is more likely to be a white perspective.

Business schools are trying to attract more African Americans and other minorities. What do you think would be their best strategy?
If business schools want to increase minority participation, they have to do more to reach kids earlier. Go to any American suburb and ask any 12-year-old, he’ll tell you that his parents have been talking to him about going to college from a young age. Not many black inner-city kids have that. They need to have those conversations earlier, so that by the high school level, they’ll expect to go to college.

If you were designing a syllabus for a business course, what would you most want to cover?
I would place a heavy emphasis on oral discussions, on making people think on their feet. I’d also include mandatory writing courses. I’ve just been amazed at how students at that level lack basic writing skills and the ability to communicate. People come to meet with us and they don’t stop for a breath or ask our opinion. I become so lost in the first five minutes of their presentations that I don’t hear what they say in the last 35. They need to know how to get to the essence of the issue with brevity.

I’ve also been amazed by how many people lack an attention to detail—business students need to develop that. I see so many sloppy resumes, sloppy follow-up, or lack of followup altogether. For example, we just interviewed three people for a job at Ariel. Within 24 hours, one person hand delivered a hand-written note explaining why he should get the job. The second person sent an e-mail. The third person sent nothing. The first person knows that people will open the hand-written letter or card in their mail before they look at anything else. I’m not sure why more people don’t understand that.

You were recently named one of Wall Street Journal’s “Top 50 Women to Watch.” What do you think we should watch for in the coming years?
I don’t really make five-year plans. I’m just always trying to be stronger, better, and faster, and to do things more precisely, more efficiently, and in a more excellent way. So, what can you expect? I hope that I’m doing this job better, that I’ve learned a lot, and that I still have good people in my life who are telling me the truth, not just what I want to hear.