State Street CEO Takes the Long View on Shareholder Activism - Wall Street Journal

State Street CEO Takes the Long View on Shareholder Activism - Wall Street Journal

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Justin Baer

Justin Baer
The Wall Street Journal
• Biography
• @justinbaer
• justin.baer@wsj.com

Dec. 25, 2019 8:03 am ET

Ronald O'Hanley was elevated to chief executive officer of State Street in January. Photo: Michael Bucher/The Wall Street Journal

As CEO of State Street Corp., Ronald O’Hanley is on the front lines of shareholders’ push to bring change to corporate boardrooms.

State Street, whose money-management arm oversees $2.7 trillion in assets, has amassed significant governance power in recent years as investors shifted more money into the lower-cost, index-tracking funds it helped popularize—and away from actively managed funds. One of its most visible efforts has been its “Fearless Girl” campaign urging companies to add women to their boards.

Since 2017, State Street has put about 1,350 companies around the world on notice for not having a single female director. Some 580 have since added at least one woman to their boards or promised to do so. Last year, State Street voted against the re-election of board members at 667 companies that hadn’t. Yet, big passive-investment managers like State Street have also drawn scrutiny from some shareholder activists, who argue they aren’t doing enough to make corporate boards accountable for their diversity efforts and issues such as executive pay.

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Mr. O’Hanley has seen the industry’s transformation from all angles. After stints at McKinsey & Co., Bank of New York Mellon and Fidelity Investments, he became head of State Street’s investing business in 2015. Elevated to CEO last January, he also oversees the firm’s core business: managing accounting and administrative functions for many of the world’s biggest investment firms.

Mr. O’Hanley sat down with The Wall Street Journal in New York. Here are edited excerpts:

WSJ: Some question how independent companies can remain when they’re owned by the same handful of large index-fund investors. What happens as passive investors like State Street become even bigger shareholders?

Mr. O’Hanley: It’s almost inevitable when you see this kind of concentration that it probably will make sense to do something about it or the regulator is going to step in. The idea of forcing the underlying beneficiary [investing in passive index funds] to vote just won’t happen. Nobody’s going to want to bear the proxy costs. One potential solution is to have the voting be at the fund level as opposed to the aggregated asset level. My view is we should be open to change on this.

WSJ: State Street’s internal practices have come under scrutiny as you’ve taken up the issue of more women on boards. Months after the firm launched its Fearless Girl campaign, it agreed to pay $5 million to settle Labor Department allegations that it paid female and black employees less. How have you navigated those challenges?

Mr. O’Hanley: It’s forced us to hold up the mirror to ourselves. Our board spends a lot of time on this. When State Street Global Advisors issues proxy voting guidelines, our board is one of the first readers. For example, there’s been a real emphasis on the importance of corporate culture. Now we’re asking that question about ourselves.

WSJ: State Street has used its proxy voting muscle to pressure all-male boards to add at least one woman. Should you be pushing for more than that?

Mr. O’Hanley: One is certainly not enough. There’s a fair amount of research out there that shows that if you’re one of a type in a group, it’s hard to speak up. For us, it’s about keeping up the drumbeat with boards that this is something that’s important to us and that we value the diversity represented by gender equity and other kinds of equity.

WSJ: California now mandates that boards of publicly traded companies based in the state have at least one female director. How do you feel about that?

Mr. O’Hanley: There’s a little part of me that wishes it didn’t come to that, but if that’s what it takes to get the last ones going, then I’m OK with that.

[But] that great sucking sound is the number of public companies leaving the capital markets. I always get concerned about rules and regulations that are applying to public companies, not private companies, as being yet another reason companies don’t want to go public.

WSJ: How did the 2008 financial crisis influence your management style?

Mr. O’Hanley: Most financial firms mark themselves “before crisis” and “after crisis” in terms of their level of sophistication. The deeper lessons out of the crisis, though, are really about how you communicate with your team.

You have to be honest and transparent with them. If you lie to them, they’re going to know it right away. You also have a role of building and instilling confidence in them. That’s a fine line to travel. Like a lot of other firms [during the crisis], we were watching the kind of pounding that our money-market funds were getting through no fault of anybody inside. The nuclear option of shutting a fund was on everybody’s mind. We said, “We have to be prepared for this.”

WSJ: What’s another corporate-governance priority for you?

Mr. O’Hanley: Climate is the one I’m personally most interested in. There’s the obvious kind of climate risk examples, [such as] shoreline real estate or any kind of business, population that’s down around the coast. Another risk is for those companies that have assets and income statements based on fossil-fuel production or utilization.

This has always been a challenge for investing: to not just be focused on what’s in front of you, but what is the second-, third-, fourth-order effect of phenomena happening out there.

Write to Justin Baer at justin.baer@wsj.com

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2019-12-25 13:03:00Z
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In cramped San Francisco, a hotel hallway with a view is turned into rooms - San Francisco Chronicle

In cramped San Francisco, a hotel hallway with a view is turned into rooms - San Francisco Chronicle

When Matt Humphreys, general manager of the Hyatt Regency in San Francisco, walked around the 1973 hotel in recent years, he was struck by its sweeping views of the Ferry Building and Bay Bridge.

He also saw an opportunity: At the eastern tip of the triangular-shaped structure was a needlessly large hallway, with great views on each guestroom floor.

That, he realized, was usable space in a city that has no room to waste. So this year, following Humphreys’ discovery, the Hyatt converted the walkways into 15 new rooms.

Each room is about 185 square feet, roughly 120 square feet less than typical rooms in the Hyatt, and part of a move toward smaller hotel rooms in space-constrained cities.

High construction costs accelerate the push to downsize. Yotel opened this year in Mid-Market with rooms around 120 square feet. A former youth hotel at 140 Mason St. just converted to a new enterprise called the Found Hotel, which includes 45 shared rooms each with four to six bunk beds starting at just $50 a night.

Nationwide, major hotel companies including Hilton and Marriott are also expanding with “tiny room” brands around 150 square feet.

“We’re the kind of city where that trend makes a lot of sense,” Humphreys said. “Every square foot is valuable.”

The new Hyatt rooms have floor-to-ceiling glass, selfie sticks and binoculars for photo enthusiasts. There are drawers under the bed and luggage benches that double as seats.

“Looking at floor plans, I was nervous” about the size, Humphreys said. But after sitting in a room, it doesn’t bother him, he said. “You walk in that door and the view’s unparalleled.” Nightly rates start at $269, in the middle of the hotel’s prices, which range from $179 to $350.

Other San Francisco property owners have converted garages and storage space into new apartments or built backyard cottages to accommodate demand in the already packed city. Hotels, with their vast atriums and common spaces, are prime candidates.

Rick Swig, a veteran hotel consultant and president of RSBA & Associates, said the Hyatt Regency was a good candidate for a conversion.

“That hotel was a design masterpiece when it was built,” Swig said. “It was later deemed a space waster.”

The hotel is part of the Embarcadero Center project, which transformed five city blocks in the 1970s and 1980s in an area once known for a wholesale produce market.

Funded by David Rockefeller, CEO of Chase Manhattan Bank, and Prudential Insurance, the center is still San Francisco’s biggest office complex with four towers totaling 3.4 million square feet.

Boston Properties owns the four office towers and Sunstone Hotel Investors owns the Hyatt, which has more than 800 rooms and is the fifth-largest hotel in the city.

The late architect John Portman designed the science fiction-inspired hotel, which has a soaring interior space that is the world’s largest hotel lobby, according to the Guinness Book of World Records. It appears in the 1974 Oscar-winning film the “Towering Inferno,” as part of a fictional 138-story San Francisco skyscraper that catches on fire.

In 1974, The Chronicle’s architecture critic Allan Temko gave the hotel a rave review, calling the lobby “the most exhilarating, uninhibited and altogether spectacular space in the history of this insouciant city.”

Temko wrote that the lobby “seems everywhere in motion, deliberately charged with wild, reckless energy,” and drawing in not only tourists, but visitors from across the Bay Area. He was less enthusiastic about the guest rooms, which he called “motel-like.”

The lobby once had more than 100 trees and was topped by a revolving rooftop restaurant called the Equinox, but both features have been removed. The Chronicle’s urban design critic, John King, called the hotel a “relic of the past” in 2016.

Andrew Wolfram, principal at TEF Design, a San Francisco architecture firm, thinks the hotel is still a distinct part of San Francisco architecture.

“It still really holds its own,” he said, but he thinks recent changes meant to modernize the lobby have made it less notable. A two-year renovation completed in 2018 added new meeting rooms, a grab-and-go food outlet and a renovated lounge and bar in the lobby.

Converting hallway spaces to rooms is a more thoughtful way to modernize the hotel, he said.

“Buildings have evolved over time. You’re eking out space that hasn’t been well-utilized,” Wolfram said.

Roland Li is a San Francisco Chronicle staff writer. Email: roland.li@sfchronicle.com Twitter: @rolandlisf

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2019-12-25 12:00:00Z
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