‘The power has shifted’: Franklin Templeton CEO Jenny Johnson on hybrid work, how to embrace uncertainty, and what’s keeping her up at night

Welcome to Human Capital, an open exploration of the ideas and people moving financial services forward. In each edition, we feature a leader or rising star who’s changing the game in his or her own way. “Finance is an apprentice business,” one often hears in this sector. Here are some of the teachers. Click Subscribe above to be notified of future editions.

Jenny Johnson, 18 months into her tenure as CEO of Franklin Templeton, is feeling the pressure.

From regulations that sheathed the industry after the financial crisis. From clients who are increasingly demanding customized investment options. From shareholders pointing to the company’s stock chart of the past decade. Then, as her name plate was being engraved for the corner office, a global pandemic began. On top of all of it, technology threatens to supplant almost every part of her industry.

“In my 30-plus years in this business, I’ve never experienced the pressure for change as I’m experiencing now,” she tells me during our recent conversation.

But what I notice in the moment is that Johnson doesn’t hesitate. She has a plan for each threat and opportunity facing the 75-year-old business, and she has been executing on those strategies since her first day in the corner office. It helps that she began her career in the industry on school holidays when she was 14, working the mailroom of the fund manager that her grandfather founded: Franklin Templeton.

If pressure makes diamonds, Johnson’s clients, shareholders, and 12,000 employees are looking to her to make the company shine. And she’s embracing the challenge.

Below are excerpts from our conversation.

What have you learned about leadership — and about yourself as a leader — throughout this pandemic period?

I think certain styles that I’ve had as a leader worked pretty well in this environment. First of all, you had to be completely transparent and provide good communication, because people were anxious about things like rules, guidelines, and uncertainty. Sometimes you had to say, “Here’s a certainty I can give, and here’s what I don’t know.”

We were all in the same storm, but we weren’t in the same boat.

That really precipitated leaders to be more focused on empathetically understanding that people are in different situations. On video calls, you got a glimpse into people’s world. If you saw a kid running in the background or anything else, we all felt a little closer to each other. And I think that’s a good thing. It allowed us to be more empathetic and then open up, and ultimately that’s what creates trust. With greater trust, you operate better as an organization.

You see it in the data: This unique environment created greater trust between leaders and companies. People looked at their employer and said, “Hey, they really worried about me.”

We’re a people business. We are only as good as our people. That’s the asset we’ve got to take care of every day.

How are you thinking about the future of work within the company? Will certain practices stick from the pandemic?

First of all, whatever I tell you right now, I’m 100% sure that it will change!

Franklin Templeton has more than 100 offices in 35 countries. For a very long time already, we have leveraged video technology, recognizing that 70% of communication is nonverbal — being able to see people and capture all of what they convey. When you add the complexity of culture, language, et cetera, we like to be able to see people on video. So, we had already operated that way, building the infrastructure within the firm. We used desktop video when it was a separate hardware device. We kind of already had a hybrid work environment.

What I think will happen is anybody who had a command-and-control leadership style — walking the floor and saying, “Joe gets in early and seems to be the last to leave, therefore he must be the best worker” — will not be effective going forward.

It’s going to be about measuring people on their results while providing flexibility.

What I say to my team is, if you’re thinking everybody needs to be in the office, just remember that an average commute in, say, New York City might be 90 minutes each way. That’s three hours a day that your people have just learned they can spend time with family, they can get a workout in, they’re more productive with fewer interruptions.

If you don’t make their time in the office really effective, they’re going to resent you for it.

Imagine when they come to you and say, well, this other employer is allowing me to only come in two days a week. What do you do then? With whatever policy you create, think about your absolute best employee pushing you on it. The power has shifted to the employees in this way.

There will be a lot of firms that create a core competency around understanding how to work in this mixed environment of some people in the office and some on video. One of the things that we’re doing is identifying a person in the room whose job it is to make sure they represent the people on video. If people start talking over each other in the room, it’s this person’s role to say, hey, remember the protocol. That will help keep everybody equally represented.

I know that harnessing technology is a strategic priority of yours. How do you view technological adoption and innovation in this industry right now, especially for incumbents like Franklin Templeton?

If you look through history, anytime there is massive disruption, rarely do the incumbents survive. Because incumbents tend to just marginally improve what they do and not disrupt what they do. This is what keeps me up at night.

For asset managers and people in the financial services industry, understanding AI, mastering data — these things are now critical. Any kind of active manager making investment decisions better be really good at using non-standard sources of data to gain their insights.

I think it’s only the tip of the iceberg as far as the disruption that we will ultimately see from things like blockchain, decentralized finance, and the like. Not just in financial services, but honestly in any industry. This can be massive.

Bitcoin has been the greatest distraction from actually getting CEOs and leaders to focus on the disruption that can come from blockchain.

Meaning there’s just so much more potential applicability of blockchain?

I’ll give you a few examples that have resonated for me.

I think that tokenization — where you can put the contract rules and the title in a token, taking out a lot of the frictional costs of transferring assets — is going to change asset management. We’re going to be able to unlock historically illiquid assets and really democratize them.

Imagine that you own the Empire State Building. You can sell it to a million people, each getting one token, and maybe you get a 20% higher return. Why would anybody rent a building that’s owned by a million people? You could still build in the token that you’re the manager and have all voting rights on how to manage that building. And the individual now has an asset, one-millionth of the Empire State Building, and they get an income stream from the rent payments. I can then go sell it to somebody else without ever having to go to a title company.

Then there’s decentralized video streaming, which I find just fascinating. It’s trying to be the fastest streaming out there. When you’re not watching content, you’re agreeing that the provider can leverage the capabilities and the power of your device, like a phone or computer, to cache some of their content and then stream it off to somebody else. That’s how they can be faster. And they pay you in utility tokens. They make their client part of their infrastructure and kind of like an employee. That’s the kind of thing that blockchain does.

Another example: Today you have Google and similar search businesses out there. They own my data — every time I’m doing searches, they’re taking my profile and selling it to ads people. Well, imagine a search engine that says, hey, you own that. Your profile is essentially an NFT — a non-fungible token — and every time you’re doing searches, you get paid to do it using these services that can then improve their search.

It’s the democratization of these business models that will change. Again, I think we’re only seeing the tip of the iceberg in terms of how these technologies can be leveraged across industries.

You mentioned that this is a people business. Does the technological adoption and innovation necessitate new skills for your people?

Our investment teams have started looking for people who can program in Python. They need data scientists. They need people who can do analytics on the data. People who can build models. So, I absolutely think it changes some of the skills within the firm.

And while some things change, other things never do or should. We’re still trying to service clients every day, and that takes empathy and relationship-building and trust. And it takes people, not machines. That hasn’t changed.

But has what clients want changed? For example, is the trend toward ESG factors real and here to stay?

One hundred percent.

What people realize is that when they’re an investor, when they have money, they have power to make change.

People now expect to get good investment returns as well as do good. But take something like ESG — the top five fund providers actually only correlate on their views 57% of the time. The data is terrible. But it’s going to get better and better. Ultimately people will be able to look at their portfolio and say, hey, not only did I get this investment return, but look at this, 20% of the companies that I invested in added more women to their board, or have greater gender equality, or lowered their carbon footprint by 25%, and those generated higher returns.

I think the next step of this is that people are going to want to tie, in granular ways, how these ESG-type factors actually impact their investment returns.

You mentioned, as part of the G in ESG, diversity of teams. How about in your own industry — how do you view the focus on diversity?

Think of Moneyball as an example — one of the greatest lessons in why unconscious bias is a dangerous thing. The Oakland A’s had a small, small payroll, and so they had to be the best at talent selection. But you see in the book and movie all the biases that can arise. “That’s crazy, he has a sidearm pitch.” They started applying AI, and when you get through it you realize they fielded the best team possible.

Any historical unconscious bias that employers had actually was a handicap holding us back from fielding the best team.

So, we are very, very focused as a firm on making sure we bring together a truly diverse workforce. We fundamentally believe that you get better outcomes by having diverse views in the room.

Ways to do that are to recruit from colleges that starkly we have not recruited from; change the screens that we’ve looked at to bring people in; and once they’re in, making sure that we are promoting them, making sure that we’re retaining them. That involves things like frequent employee-sentiment surveys, looking at the data from various groups to make sure we understand what folks’ experiences are, and frankly, really listening.

Any firm that isn’t focused on really fielding the best diverse team is going to have a hard time competing. Plain and simple.

Another set of your strategic priorities culminated in last year’s acquisition of Legg Mason, the biggest, most significant transaction in Franklin’s history. What was the thesis behind that deal?

Whenever you do an acquisition that doubles the size of your firm, it takes a few years to truly do integration before you can claim success. I have to say, we are really pleased with where we are.

We had laid out a strategic plan a couple years before we did the acquisition, and we knew there were some product gaps that we had. There has been a lot of growth in the alternatives space — private credit, real estate, private equity — and we knew we needed to grow there. One of the biggest asset classes that people invest in is core-plus fixed income, and we didn’t have scale there. It’s a real scale game to compete. We also were primarily more of a retail shop, and we wanted to grow bigger on the institutional side — big pensions and groups like that.

We thought we would have to do a series of acquisitions, but when Legg Mason came about we realized we could actually check most of those boxes with a single acquisition. So, we’ve gone from $700 billion and change to now a $1.5 trillion manager.

That allows you to invest in things. As our clients are demanding more customization, it allows us to invest in technology; data, not only for AI but also to gain insights from non-traditional sources; ESG, and the ability to engage with companies on actually making progress. All of that is expensive. If you can share the costs across a broader platform, you can provide more services to clients.

That was the thesis behind it, and so far, so good — we’re quite pleased with it.

Looking forward, what do you want to achieve next in this role?

In my 30-plus years in this business, I’ve never experienced the pressure for change as I’m experiencing now. Some of it was regulatory-driven out of the financial crisis of 2008 — that has changed certain dynamics in the business — but most of it is due to technology and disruption.

We’re going to have to be building portfolios that are very, very customized for clients. That’s a technology investment. We’re going to need to leverage things like the blockchain and tokenization. We were the first to launch a regulated stablecoin — a money market fund with a stablecoin. We’re in pilot mode with it now, working with the SEC. They appreciate it because we’ve learned together step by step as they try to figure out how to regulate this world. After that, we’ll look to launch other types of similar products.

And then in alternative assets, that space has historically only been available to accredited investors because the assets are illiquid. Folks have had to have more than $1 million in investable assets to even get in the door. The problem is that if you look over a long period, say 20 years, the returns have almost been twice as traditional, say, equity markets. That’s a real disadvantage to the average person if they can’t access that type of return. On the other hand, there’s a reason for protections around that, because if somebody needs the money and it’s all tied up in an illiquid asset, that could have unintended consequences.

So, we’re looking at how to democratize, in a safe way, the alternatives space. There, we are looking at vehicles like 401(k)s, where people tend to keep savings for a long period of time and there are facilities for borrowing in case of emergency. Perhaps you then can bring in some of these alternative, private assets that historically were just for the high-net-worth.

What advice do you find yourself passing on to younger professionals in this industry?

I have four Ps of leadership that I think are also relevant as you’re making career decisions: people, passion, purpose, and persistence.

So, people: I always say, surround yourself with great people. As a leader, I’m only as good as the team I put together, and they’re only as good as the team they put together. So, the people decisions are really critical. When you go to work for a company, work for people who share the same values as you. You’ll never feel in conflict.

Passion: Do what you love and you never work a day in your life.

If you don’t love what you do, you are never going to be able to compete with somebody who does.

Figure out what you love to do, and then make a career out of it.

Purpose: As a leader, I talk about what I do in such a way that resonates with my people and that they can rally around. We’re passionate because we believe we help people achieve the most important goals of their lives: retiring with dignity; making sure you don’t lose your house when you retire; if you have a special-needs child, making sure there’s enough money to care for that child; helping your kids with their college education. Whatever those goals are, our clients rely on us to help them construct a portfolio that can achieve those goals. That is something our folks can rally around every day. So, young people need to find that for themselves.

And then persistence: I guarantee you, you’re going to fail at some point. I think the big difference between people who are successful and people with failure is how each responds to failing. It’s dusting yourself off, getting back up, and getting right back in the game. I think everybody would be surprised to hear the series of failures that any successful leader actually has experienced.

Finally, a new one that I’ve added is the ability to work with ambiguity. There’s a lot of change right now, and where I see people struggling sometimes as they get higher up in their careers is with the ambiguity of an environment, the uncertainty of not always knowing what’s around the corner. And in times like this, of massive technological change and disruption, it’s really as ambiguous as it’s ever been.

You have to embrace change and learn to operate with it, otherwise in today’s environment you will end up limiting your career advancement.

How do you implement that last one in a large organization and make it stick for people?

In a way, it will manifest through promotion decisions. But also, as a leader you have to talk about it.

I tell people, “Look, I don’t know what things are going to look like in two years. I just know what they look like now. These are the factors in front of me that I’m watching. Other than that, I have faith.”

And you let them know that while you’re not immune from anxiety about it, you as a manager or leader are willing to put your hat in the ring. That’s the most we can ask of people.

What are you and the team watching closely or debating now?

There’s been a real boost to the economy as consumers have wanted to just get out — travel, go to restaurants, all of those things that were suppressed during the pandemic. I think we’ll see people continue to jump back in, perhaps moderated a bit by the delta variant.

I have to tell you, when it comes to things like interest rates and inflation, it’s just about the most controversial topic across my fixed-income teams. There are tailwinds — easy money thanks to the Fed, stimulative fiscal policies, the economy opening back up. There are headwinds, such as massive debt that we’ll have to deal with. There is technological disruption across industries.

I have thousands of investment professionals under me and I look to them as experts. They all agree that those are important components feeding into the outlook. And they completely disagree on what they think the outcome will be.

Join the conversation with your own take on these topics in the comments below.