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Edward Jones’s managing partner on why the company’s old ways are ever-so modern

May 25, 2022, 11:15 PM UTC

On this week’s episode of Fortune‘s Leadership Next podcast, co-hosts Alan Murray and Ellen McGirt talk with Penny Pennington, the managing partner of Edward Jones, about supporting customers through the pandemic, having “courageous conversations” with employees, and making sure your company is welcoming to all.

Listen to the episode or read the full transcript below.


Transcript

Alan MurrayLeadership 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 my amazing co-host, Ellen McGirt. Ellen.

Ellen McGirt (00:26): Thank you, Alan. Hello, everyone. And yesterday was an amazing day for Fortune wasn’t it?

Murray (00:32): It was. It was the 68th publication of the Fortune 500 list, which is, you know, really the lodestar of Fortune.

McGirt (00:41): Yeah, and I remember back when I was first at Fortune, this is my second time around. One of the first assignments I ever had was getting to write the opening essay for the Fortune 500 and I felt like I had really been anointed. It was such an amazing opportunity to just dig into the amazing work that goes into the list, the history of the list, and of course, the amazing Scott DeCarlo who is the keeper of the data, and is always off in some undisclosed location.

Murray (01:11): And I love it because it always produces lots of great business trivia. Like this year’s list, the Fortune 500 as a whole generated the most revenue growth. It was up 17% from last year, the most revenue growth since 1975. Profit growth was up 114%. That was the highest since 2010. And profit margins at 11.4% were the highest in the Fortune 500s entire history. So it showed what a powerful economic year coming out of the pandemic last year was.

McGirt (01:47): Anybody post any losses? I’d hate to be on that list.

Murray (01:50): Thirty-seven companies. I’m glad you asked that, Ellen. Thirty-seven companies posted losses in 2021, totaling $35 billion. So that was the smallest amount in losses since 2015.

McGirt (02:04): Well, I guess if you’re going be on the loser group, that’s a pretty good list to be on. I’m going to tell you a stat that really stood out to me from this year’s list. There are 44 women running Fortune 500 companies, that’s three more than last year and the highest number in the list history. Not nearly enough. The percentage is still not good, but it’s progress. I agree.

Murray (02:22): It’s not nearly high enough. Look, you’re talking about half the population, half of the entering talent pool of most of these companies. And, and there’s still I think, a lot of understanding to come on why so many women fall out along the way and there are only 44 at the end of the day running Fortune 500 companies. But anyway, one of those 44 women is our guest on today’s show. She’s Penny Pennington, head of the financial firm Edward Jones. She joined the company in 2000, became managing partner in 2019. It’s a fascinating operation.

McGirt (02:56): You know, it really is. It’s local to me. I live in St. Louis. So that I feel their impact and influence all over the place but Penny is really special. She’s a regular on the Most Powerful Women stage and on our list, and she just she brightens every conversation she’s a part of and she did not disappoint us today.

[Music]

McGirt (03:18): Penny, I am so glad you’re here. First of all, it’s just so wonderful to talk with you again. You’re such a mainstay on the Fortune conference circuit. But I want to make sure that you know that I live in Edward Jones territory. I live in Chesterfield, Missouri and literally all my neighbors are either advisors or customers so I’m really living in the culture. So that’s actually my first question to you. I’ve got a lot of things I want to ask you about but we should talk about how Edward Jones operates and that in person, in zip code, in community approach. You’ve become an unlikely leader in a really competitive field of investing and financial advice. Maybe we should start with that and how that works.

Penny Pennington (03:59): Sure. Ellen, it’s great to be here with you and Alan. I admire you and the organization so much for all that you do to propagate a new style of leadership which I think is so important, and I know that we’ll get there.

So let’s talk about Edward Jones first. A hundred years old. For 100 years, developing deep, trusted relationships with the people and the families that we serve. So the value proposition of helping people achieve possibility in their lives that they didn’t necessarily know was there before. Building with them, a life plan and a financial plan. So that value proposition at the scale at which we provide it makes us very unique.

You said you’re right here in Chesterfield. I like to think that you would find people who would say that about Edward Jones everywhere in North America because we have a brick-and-mortar location in two thirds of the counties of the United States and all 10 provinces in Canada. We are hyper local, at a period when people are craving relationship more than ever before. We are there in the same zip code in the same community helping build that community and across the arc of generations. So the value proposition and the consistency with which it’s delivered, and its ubiquity across North America means we serve almost 8 million clients today. They entrust a 1 trillion eight of their assets to us, we have 15,000 locations and 19,000 financial advisors. Those are a few things that make us very special.

Murray (05:45): Yeah, let me, Ellen, let me follow up on that because what’s interesting is not just what you are doing, but what you aren’t doing. You have storefronts. You have more advisors, I think, than any of your competitors. But what you’re not doing is building a digital trading platform that collects pennies off of every person’s trade. You’re not moving in the kind of technology-platform direction that many of your competitors are, most of your competitors.

Pennington (06:12): Alan, here’s what I would say about our business model. Our business model is the best of all of those worlds. It first is a very human way of helping a family helping a client discover possibility in their lives during times that are always fraught with a little anxiety and we’ve certainly got that going on right now. That takes a human being to do.

McGirt (06:39): So the last two years have been challenging for everybody. But there are two intersecting challenges. First, the pandemic you know, if you’re hyperlocal, it’s going to hit you hyperlocal and then the quest for racial equity and racial justice. Let’s take the pandemic first. How did that impact your business and how did you think about your presence in communities during lockdown?

Pennington (07:01): Well, we were considered essential from the very first week of the pandemic. Essential in that people’s financial plans were being impacted by the economy and what was going on with the pandemic. And so, we were deemed really important to stay in contact with our clients. The way that we did that very tactically, we got everybody set up on Zoom within about five days of when the shutdown started in March.

And so talking about the humanity and the technology coming together, our financial advisors and clients stayed in it together even when they weren’t necessarily in the branch together, as has been more our custom over time. But frankly, I really appreciate what this taught us and it’s something that we won’t lose, the ability to meet in a virtual way. Our clients really enjoyed that, they’re continuing to enjoy that. But what it says is fundamentally, we’re staying connected to them in every community through this whole period of time.

McGirt (08:06): So let me let me follow up on the second piece of it. I’ve been following your five point commitments for a couple of years now. And there really, it was a really ambitious program. And I want to start with what you’ve learned about your courageous conversations program—because that was ambitious. I know it’s ongoing and because you’re local. I’ll give you one anecdote that just blew me away. I won’t mention what part of the country they were in but representatives in an Edward Jones office, virtually joining in important courageous conversations on race and equity, while there was a protest outside their office in the street around a Confederate monument that is connected to the community. Tell us about the courageous conversations program and why it was important and what you’ve learned.

Pennington (08:48): Ellen, this started as a result of the CEO Action pledge that began from Tim Ryan and PwC a number of years ago pre-pandemic. We were one of the first companies to sign on to that pledge. My predecessor, Jim Weddle was one of the first 100 or 150 CEOs to sign on to that pledge. One part of that pledge was to create an environment in your company where people could talk. People could talk about things that were going on in their lives that were affecting them, affecting their ability to bring themselves fully to their work every day.

And so as a result of that pledge, during the pandemic we really established what we call courageous conversations. It’s a voluntary thing that we do. We have a particular topic, and we explore that topic together. We explore that topic in a place of safety, a place of candor and respect for other people’s points of view. Coming at it from a place of learning, of vulnerability, of opening ourselves up to sharing what we believe and seeking to understand what other people believe.

I’ll give you a framework that we use around how to think about this learning journey. The first part of it is I need to get in touch with what I believe and why. The second part of that journey is I want to open myself up to what you believe and what your experience is, and how that’s shaped you. And then I want to think about how as a group as a collective, in this case, as a company, how do we think about the structures and the policies and the conditions and the ways of working together that really foster that kind of place of belonging, of acceptance, of vulnerability in some cases, and of learning that helps us be better for our clients, frankly, to come at the world from that place of empathy and understanding? And it helps us be better for one another.

Murray (11:01): Penny, it’s fascinating listening to you talk about human-centered approaches, both to how you deal with your customers and how you deal with employees, talk about empathy, and so forth. And it’s working for you clearly. I mean, you were once again this year on Fortune‘s List of 100 Best Companies to Work For and you’ve obviously also had strong financial results and you’ve rocketed up the Fortune 500 list over the last decade. So the combination is working. But I’m curious, where did you learn that leadership style? Where does it come from? Is it rooted in the 100-year history of Edward Jones? Do you have mentors who have helped you figure it out? Because it’s clearly not what every CEO does.

Pennington (11:49): Alan, you’re asking that question a little bit from my personal perspective, and I’ll answer it from a personal perspective. But I also want to start that by saying I am a product of the culture and the leadership development focus that Edward Jones has had for decades. So we’re 100 years old with the same name on the door. You don’t get to be that without constantly listening and learning coming at the needs of your clients and our colleagues and the communities where we serve from what’s important to them. So I am simply a product of that focus of that ethos of that culture. And we’ve also built our leadership development around that, at important points in time very explicitly say what we mean by leadership. We took the opportunity to do that over the last couple of years and what characterizes good leadership for our company in the world that we live in today is to first be purpose driven. Next be human centered. And third, be courageous. And we have explicitly stated what characterizes those three dimensions of leadership. It is focused on other people, focused on service, focused on their wellbeing, focused on creating value and innovation. And it’s focused on being a leader who’s willing to lean into that kind of leadership, not wait for the answer to come top down, but instead work side by side. to create those kinds of answers for more people.

Murray (13:32): Yeah, it’s so interesting to hear you talk about the 100-year history of of that human-centered commitment. But I think as you know very well that we lived through a kind of a quarter century where there was an extreme focus on shareholder return, where many of your competitors took very different approaches to how to go after the market. And I suspect there were times in there when people looked at Edward Jones and said, Oh, what an old-fashioned company you know, what do they know? So does it surprise you or strike you at all but the world is now coming around to your position?

Pennington (14:06): If you go back to Peter Drucker, Peter Drucker said the purpose of a company is to improve society through the tools of business and of capitalism. He talked about the knowledge worker, he talked about innovation. He talked about multiple stakeholders, not just one, but multiple stakeholders and the levers that businesses have, the unique levers that other organizations, other types of organizations, government certainly doesn’t have, to improve the lives of people sort of on a on a continuous basis. I heard somebody say if we, if we really paid at least as much attention to Drucker as we did to Friedman, then you know, this wouldn’t be quite as wouldn’t be quite a sea change that people are describing it as as today.

And then in our business, Alan, you know, we’re some of the tools that we use to help clients achieve what’s most important to them are the tools of the investment markets. We love investing in enduring companies that are governed and managed well that think about the full panoply of their stakeholders. Good companies have been doing that for a long, long time. So we’re, we’re proponents of that we ask people to invest in that. And that’s how we see the endurance and the success of our company as well.

Murray (15:31): You didn’t put a lot of your clients into Gamestop when it was soaring, I guess.

Pennington (15:32): Well, that was one of those moments when people were saying, Why aren’t you or Why Can’t We? But we have 100 years of experience in taking a breath, taking a pause, taking the long view and helping our clients make sense of all of that in the moment.

McGirt (15:56): Well, I’m going to ask let Alan ask you the crypto question because you know, it’s hard. What is this? Well, but I wanted to pause on the courage piece of your three leadership frameworks there. And in the last couple of years, you were one of the earlier financial leaders to start talking about the racial wealth gap and what that was going to mean for communities that you would like probably to serve, even in more robust ways. You set really big goals, to increase your ranks of advisors of color, to increase the ranks of women advisors as well. So can you talk to us about the bigger strategy of the courageous work that you’re doing and the things that you’re learning and seeing on the ground about inequities related to the financial markets and how the inclusion work you’re doing is going to help those new advisors thrive and their customers as well?

Pennington (16:48): Sure. Well, Ellen, let’s go all the way back to the beginning. Why is this important? For decades, Edward Jones has been serving people from all walks of life, people with so many different backgrounds and experiences and races and goals and hopes and dreams and aspirations. To do that, well, we ourselves have needed to, to come at this from a place of empathy, from understanding who they are and how they got to be who they are. And that’s why community is so important to us. We’re right there in the community. We know how that community is structured. We know some of the opportunities in those communities and we know some things that are that are the thorny problems in those communities.

We also know that we need to look like that community. We need to look welcoming to that community. We need to be welcoming to our communities. Now, I want to be really thoughtful here, Ellen, because I was a financial advisor. I was a female financial advisor. That doesn’t mean that all of my clients were women. It certainly doesn’t mean that men didn’t want to work with me. What it did mean though, is that I brought a particular set of experiences to the table and people could look at me and hear about my experiences, my life journey when I’ve shared that with them and they knew that I had a way of relating. And so that’s what our industry needs.

When we talk about the gaps, the opportunities across races, and this is a stark gap between black and white, black and brown and white, in particular, the income gap, the wealth gap, we can talk all day long about how those things got to be the way they are. But the issue is that today, there are big gaps. And so when folks from different backgrounds, different sets of experiences come to Edward Jones, we want them to see that they are welcome here, that they deserve human-centered financial advice, that they can have a conversation where they explore their own experiences and their own aspirations with an empathetic, knowledgeable financial advisor that may look like them or might not but the experience that they have is that they are heard and seen as a person, as a family, whose got goals and hopes and dreams that we can help them with.

[Music]

Murray (19:26): I’m here with Joe Ucuzoglu who is CEO of Deloitte US and had the good sense to sponsor this podcast. Joe, thanks for being with us and thanks for your support.

Joe Ucuzoglu (19:36): Thanks, Alan. Pleasure to be here.

Murray (19:38): Joe, we talked about technology adoption accelerating in 2020. But at the same time, it also seemed last year like there was an increased focus on people, on human capital. Can we hope for a future where we have both more technology and more humanity all at the same time?

Ucuzoglu (19:55): Well, Alan, I’m particularly energized leading a large professional services firm where people are at the core. This is all about pairing great people with innovative technologies. It’s not about replacing one with the other. It’s allowing people to free up more of their time to do what humans do best. The technology is an enabler for great people to use their creativity, their complex judgment, decision making skills, but at the same time, I think we have to recognize that getting this right definitely requires a new kind of corporate leadership. I would say out with the autocratic, all-knowing CEOs sitting in the corner office and in with those who bring vulnerability, empathy, humility. Those are such critical attributes to unlocking the creative talents of the workforce in such a dynamic economy.

Murray (20:52): It is very different when you’re trying to get a group of creative people to solve a problem than when you’re simply giving orders and telling them what to do.

Ucuzoglu (21:00): It requires a brand of leadership that places a premium on instilling values, instilling principles, and empowering people to be able to make those judgments on the front line, instead of waiting for some checklist or waiting for some prescriptive order from corporate it spells out exactly how each of those decisions need to be made.

Murray (21:21): Joe, thank you.

[Music]

Murray (21:27): All right, Ellen set me up to ask the crypto questions. So I will revert to type and ask. There is clearly a lot of interest. Clearly a fair amount of hype and fluff. Enormous volatility involved. I can say I don’t have a huge portion of my portfolio sitting in crypto. But on the other hand, I am convinced that we’re at the start of something here that is going to change the financial world over the next couple of decades. So what do you tell clients about how they should be thinking about crypto?

Pennington (22:00): Well, we start from our investment philosophy. Our investment philosophy is rooted in quality, diversification and a long-term orientation. Now, could crypto be a part of each of those characterizations? Sure, and what you describe is exactly right, crypto digital currencies, the trading platforms for those and how we use them as consumers, how institutions use these technologies. This is going to go through, talking about transformation, this is going to go through evolution and transformation that’s going to be really fun to watch. So investing in those things is likely going to be a part of the investment portfolio for clients, some today and more going forward. However, we do not believe that speculation is a part of serious long-term financial planning. And there is part of the crypto market right now that is pure speculation. It is disassociated with fundamentals. It’s disassociated with rationality in some ways. And so what our financial advisors job to do is to help clients make sense of that. Right now they’re very curious about it. Clients are very curious about what all this is and what part of the market is speculative. And what part of it really does have merit and meaning right now, and when or does it fit into my particular portfolio? So again, it’s a very personal discussion that we have, but it’s a head and a heart discussion of making sense of this right now.

Murray (23:47): Now, I want to take this one offline because I need your advice. And I know Ellen, Ellen, you have your speed random questions, but one more investing question I want to ask you Penny you know coming out of the pandemic, there was an initially a lot of business optimism, but the optimism is kind of going away pretty quickly when you see how persistent inflation has been, when you see how the Russian invasion of Ukraine is affecting supply chains again, and how that may contribute to inflation. Anybody who has looked at the history of the last century knows that when you get into a situation like this, where inflation is going up and the bond market is going crazy, recessions usually follow. So are we on the verge? Are we you know, a few quarters away from the next recession?

Pennington (24:40): Alan, we don’t believe that the next recession is coming in 2022. And we don’t believe that it’s coming as a result of inflation or the Federal Reserve’s response to inflation. We believe that the fundamentals in the economy right now are still fairly strong. However, expectations had gotten built that inflation was nonexistent, that interest rates would stay low forever and that the equity markets would continue to return double digit returns for decades to come.

And of course as I say all that, we know that that is not the way the world works. The business cycle has not been repealed. Equity values have been very high. Inflation has been very low as have interest rates and now that’s cycling back around. We don’t believe that inflation is going to become entrenched as it was decades ago. We believe that the Federal Reserve has got the right levers to pull and that they are doing that at a goodly pace now and that has been priced into the bond market that the Federal Reserve will be successful in raising interest rates appropriately and achieving what some have called a soft landing. So we don’t believe that recession is imminent.

However, the business cycle is still out there and investors need to have appropriately tempered expectations right now and be getting good advice…here’s the plug…be getting good advice about where some of the right rotations are right now.

McGirt (26:18): All right, before I go to my speed round, I want to reframe a question as advice for some of the listeners. Advice advising and finance has long been a primarily white and male field and I know that that’s changing. I know that you’re working to change it. What is your best advice for other leaders and listeners to this program, who are working in similarly homogeneous cultures, so they can better make their workplaces more welcoming for women of color, for people of color, for anybody who doesn’t fit the majority culture as defined by that workplace?

Pennington (26:56): Ellen, I would say two things. And again, this simply comes from our experience, look to your company’s own purpose. And does your company’s purpose have something to do with serving more people? Certainly more consumers. Does your company’s own purpose have to do with improving the lives of the people who work for your company and being in service to a broader set of stakeholders? I would imagine that your company would answer and you as a leader would answer well, yes, of course it’s not just all about us. It’s about being helpful to others, to creating new value, to innovating to bring those things to the marketplace.

And so if the answer to that is yes, then look at the data. Look at the data and what that tells us about the homogeneity of consumers. That’s lessening. More people are expecting more personalization to their particular needs. They are demanding and they’re deserving to be seen and heard as the unique investors or consumers that they are. And so if you look at the data and realize that consumers are becoming more demanding for personalization, and we as a society are becoming more diverse, than it means as a company you’ve got to lean into that. You got to be good at that. You’ve got to be good. At that kind of empathy, that kind of approach to creativity and to innovation, that you’re able to get more quickly to those solutions, those hyper-personalized solutions for more people. The only way you’re going to be able to do that is to be a more empathetic leader with more perspectives at the table, so that we that we’re able to be more creative and frankly, so that we don’t make dumb mistakes about how we seek to serve a particular community or a particular set of consumers.

McGirt (29:02): All right, Penny this season, we’ve been asking all of our guests to just answer a quick lightning round you’ve, you’ve hit one of them in your earlier answers, but we’re gonna try it again. Just what’s top of mind for you on three important subjects. First, what’s top of mind for you when you think about COVID.

Pennington (29:18): Thinking about COVID is we are entering an endemic time for COVID. So being appropriately proactive and responsive, responsive and proactive to how the environment is just going to ebb and flow in the coming weeks and months.

McGirt (29:37): Top of mind for you when you think, I almost said Alan’s portfolio, top of mind for you when you think about the economy.

Pennington (29:44): The economy is over the coming weeks and months as interest rates are increased, how that affects asset prices, and ensuring that we’re rebalancing our portfolios on the kind of pace that we need to right now. Don’t set it and leave it for the next six months. Be in touch with your financial advisor and they with you, about reallocating, as interest rates move up and as things begin to moderate.

McGirt (30:12): Perfect, that’s really good advice. And finally, what’s top of mind for you when you think about your development as a leader?

Pennington (30:19): Well, from a very vulnerable place. I’m about to go to a three-day CEO development-immersion session from which I’m building my new base camp for the leadership impact that I want to have. I’m three-and-a-half years into this role, and it’s time for renewal for me. And so I am rebuilding my own leadership playbook right now. That’s what’s top of mind.

Murray (30:49): Wow, yeah, that’s awesome. And you need to share it with us when you get out. Penny, I think it was three years ago when you and I first met in Montauk. I’ve enjoyed every opportunity. I’ve had to talk with you since then, and I always learned something new. It’s such a pleasure having you with us today.

Murray (31:06): Alan. Thank you. Ellen, it’s a pleasure to see you both. Ellen, I’ll see you around Chesterfield.

Alan MurrayLeadership 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 MediaLeadership Next episodes are produced by Fortune‘s editorial team.

The views and opinions expressed by podcast speakers and guests are solely their own and do not reflect the opinions of Deloitte or its personnel. Nor does Deloitte advocate or endorse any individuals or entities featured on the episodes.

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