Navigating Risk Management during a Global Crisis with Sam Pallotta

Welcome to this week's Treasury Career Corner podcast where I interview treasury professionals about their treasury careers. Each and every week I talk to treasurers about how they've built their careers, where they are now, and where they see both themselves and the treasury profession. Going to next this week's show. Delighted to be joined by Sam Pelota, the chief Risk officer and treasurer at Rockefeller Group. Now, a lot of people listening today. Well, Rockefeller, we know those guys. Yeah, they've been around for over 90 years. They're one of the most trusted names in real estate. Leading developer, owner, operator, but large scale urban mixed use developments. I know there's a lot of stuff about Rockefeller which I'll actually get Sam to describe a little bit later in the show because they've got lots of different investments and they've got this great history and very iconic buildings as well throughout New York. But I want to focus on Sam, I want to focus on treasury and where he fits in as well. So we're going to jump straight into Sam's career. Sam, take us back to the beginning of your career. If you were from graduating, how you discovered finance and then you went, oh, actually treasury, that's for me. Back to you, sir, over to you.

Thanks, Mike. I'm really looking forward to joining you today. I began my career. First significant job I had was with Johnson and Johnson, their corporate finance team. And I was working as a financial accountant, pulling together P&Ls and balance sheets, doing market analyses from a finance perspective. And I really enjoyed corporate finance and Johnson Johnson was an excellent organization. But I envisioned for my career obtaining my mba. So I was able to get my MBA at the University of Virginia while I was doing my career search and trying to restart my career and think about what my next step would be. I was attending a lot of symposiums and information gatherings on different careers and different opportunities. And I happened to attend a workshop that was run by General Motors that was seeking summer interns for their Treasury Department. And that was just a light bulb went on when I went in and heard about that opportunity because I never really knew what treasury was. I was a finance person. I had majored in finance and loved corporate finance. But then sitting here in this meeting, all of a sudden I heard about treasury. And to me it was these complex financial transactions that were key to the strategy of the organization. And it just fascinated me. And kind of the light bulb went off and I said, I really want to pursue this further. I abandoned the other opportunities and I just focused on getting a summer internship with General Motors, which I was fortunate enough to obtain and it started my career in Treasury.

And then you made that move as well, didn't you, at J&J. And you actually joined General Motors from that rotation. Explain that, because that's a great company to work within and to really have that on your resume.

Yeah, when I was at General Motors, I felt as if it was a very prestigious position. Their treasurer's office globally had almost 100 people in the office and the transactions that they were taking on were innovative. A lot of the case studies that I learned at school were from General Motors and their treasurer's office. And I went in for my summer internship and then ended up working there for over five years in a variety of rotations. And it was just a fascinating and such an exciting time for my career to start my career in treasury there. I'll be eternally grateful for the opportunity and all the work experience I obtained as a summer intern working on selling the company's corporate aircraft and leasing them back. So a sell and lease back transaction for $100 million of corporate aircraft. And then first day in, basically as a summer intern and then first year working on the capital markets team, I was managing a fixed income portfolio of near term cash. And it was normally a 5 million to billion dollar fixed income portfolio, which was interesting enough. But then we ended up doing the largest debt issuance at that time was 17, $18 billion debt issuance and being able to sit at the table as the most junior person but be able to be a part of that deal and then to help invest the cash in the near term as it came in to the organization and put it to work in the fixed income market temporarily. It was just a really fun challenge to take on, especially at such a young age in my career. And then I worked at General Motors for five years as I mentioned, and I rotated and overseas finance pension plan funding and analysis as well as capital planning. So it was a lot of opportunities to kind of learn treasury and to be challenged every day and really get that grounding in treasury that I'm able to now leverage throughout my career and.

That ethos I wanted to dive into that. We spoke about this, we had a pre briefing call and things. And one of the things that really fascinated me was you talked about it being groundbreaking for treasury because treasury can be just keeping on looking after the cash or keeping on doing the financing and things like that. What was pushing behind that? Obviously there'll be maybe some senior members you might sort of point towards or why did they bother to Be groundbreaking. Was it just, well, if we do this debt offering and we make it the biggest, it's going to get us the biggest return. Is it simply just at the end of the day still about the cash or was it just that they wanted to sort of stretch the bubble, push the bubble of treasury or what was the sort of the driver behind it, would you say?

Well, General Motors at that time was, you know, it's of course an automotive company, but it's also fine organization. It still is today I would imagine in that, you know, they have the GMAC where they were, you know, serving as a finance organization, extending loans. But you know, the, the operations of automotive companies are very heavy into the finance and the treasury team was perceived to be an integral part of the success of the organization. Whether, you know, trying to forecast billions of dollars of cash or you know, manage a hundred billion dollar pension plan that was really constraining the company. I mention issuance. One of the reasons for the debt issuance was to fund the pension plan. And all of these things were having significant impact on the liquidity, profitability and viability of the organization going forward. And so these finance projects were really instrumental to the success of the company as well as some of the challenges and troubles that it had over its time.

And then what number of years there? What your five years there?

Yes, it was five years.

Yep. Five years. You did five years. Innovative, great. You want to stay? What happened?

Yeah, I really enjoyed the time there. You know, it was, I think almost everybody who leaves General Motors always looks back and says, you know, that was a unique time. But for me, while I like the work, I, you know, you spent a year deeply immersed in one project, one project area. So you'd be deeply immersed in pension plans, you'd be deeply immersed in capital markets. And I wanted to try to, you know, at some point I wanted to kind of have a little more breadth and kind of see all of treasury on a daily basis as well as I wanted to have it be a little more, I wanted to have a little more impact on the company's long term strategy. General Motors is such a large organization, it's really impossible for anybody, especially someone in a junior position like I was at the time, to truly influence the organization. Moving to the Rockefeller Group, We're a company of 200 people. We have a big name, we have a pretty strong balance sheet and a lot of revenue. But I was really able to from day one run the Treasury Department and be directly involved in the investment strategy and the corporate strategy of the organization. And that to me was those two things really excited me. So when I had this opportunity at Rockville, I said, it's the opportunity to run a whole department up from. Build a department up from what it was and impact the organization in such a away. It was just too, too good an opportunity to pass up.

And you've been there, what, 12, 13 years now. Lucky for you.

Yeah, yeah, it's been great. I mean, every couple of years new challenges come in and it's just made it a very fascinating career for me. So I continue to enjoy my time here.

We'll talk about it that. Because let's go back to the early days and again, when we spoke before, you were coming in and you're relatively young, Whipper snapper coming in from. Hey, look at this big dude coming in from General Motors. Look at him, you know, and you're working with. Alongside leading people older than you and we. And you're having to influence and lead them and you're their boss. And that was a key. One of the things we identified before the show that you really thrived in that and how you took that challenge on. Can you explain for the listeners? Again, they'll be the same thing. They're going to a new place. They go, right. You're going to manage a team of three, four, five and the size of the team, but they're going to be 10, 15, 20 years younger, older than you. Good luck. How was it?

Yeah, we can talk about that. Absolutely. Because building the department up and improving our cash forecasting or our bank relationships, to me, that was the easier thing, ironically, perhaps, because what the challenge for me was in terms of being a leader and developing my team, because, one, I hadn't had much experience in that I'd been with my career. You're right, I was young. I was 33. I had about 10, 11 years of experience and not very much experience leading teams. Then, as you mentioned, all of my team members have been with the company. They were about 10 years older and been with the company a lot longer, on average, maybe 15, 20 years. And so there was this challenge and it became a situation where, you know, how do you first of all establish your credibility and then how do you build a rapport with the team? And, you know, establishing the credibility was around, you know, driving change, leveraging my experiences at gm, that was good, that was helpful and became. It was easier because I was able to, you know, leverage my acumen in Treasury. And so I think both my team as well as the senior management team up above recognized that I could have value to the company early. But then building the rapport for the team was even more challenging because, you know, there was the age difference, there was this concept of, you know, I should be, you know, respecting my elders, I should be deferring to their tenure. But at the same time, you're the leader. You have to drive the company's vision and mission. And in some ways there were hard feelings. You know, you're replacing people that maybe wanted the job opportunity themselves, that wanted the position. So it was a very unique time where each individual had to be addressed and dealt with. And they were all very unique. I only had a team of three at this time, but each one represented a unique challenge. And the way that I found the success that I was able to have was really just by kind of listening, really trying to get to know what drove each member of my team. And especially because they all had such unique approaches to their positions and unique desires for what they wanted to get out of the company in the near term, in the long term. So I think by listening and trying to build that rapport, we were able to have success. And, you know, all three of my team members that are dealt with the company still in my department, so that's a positive and we continue to have success together.

And from that, and you just touched on it there, that sort of different drivers and different subject matter, if that's the right word to put it, because very much with your role, you've got this element of investment management, of governance. And we're recording this when at the height of the COVID crisis and everything else, but we'll talk about that later on the show. This is more to sort of touch on how your role as a treasurer is structured versus maybe a treasurer of Coke or Pepsi or something like that. Obviously you've got this real estate, your investment management, lots of different pressures there, which are different to some other treasures, perhaps. Describe, if you would, your role as a treasurer there.

Yes, our role began early on as just making sure that very consistent with core treasury, right. Core treasury applications, trying to make sure that we had our cash forecasting, that we were investing our cash in the right manner, that we were raising debt project level to corporate level, efficiently and effectively building our bank relationships. So, you know, all of the core treasury functions and that the first three to four years was really focused on building that and leveraging the team strength. You know, we had very good cash management team that really understands cash management that is heavily involved in technology, has been working treasury workstations since the mid-90s. You might have appeared like, we're not a big company, we're not the Pepsis, but we had this. We've been in a workstation since for a team of four and yet have a Treasury workstation since the mid-90s. That's impressive. And we have a great bench in that regard. And so it was an opportunity to just fine tune that and let the organization know how effective we were at cash management and get the message up to the organization. And in some areas, like bank relationships, there was an opportunity to broaden our bank relationships and strengthen them and do more deals and do new deals and support the growth of the organization through project financing and leveraging. Our assistant treasurer, who's now our assistant treasurer, his experience in that area and his depth of knowledge around how to raise debt. And so it was really just tapping into these resources and giving them an opportunity to identify the projects they needed to work on and then communicate them up to senior management to give the senior management team confidence that we had the potential and the capabilities to help the company grow. But over time, that was kind of the phase one. But over time, once we got there, I was really interested in pushing out into what treasury and risk management can be. And that's why I think now I have the Chief Risk Officer title for the last three or four years. Because what I was doing in that second phase of my time at Rockefeller Group was really broadening our role into corporate finance, broadening the treasury team into investment analysis. So now I sit in on a committee and I have for some time we've created a committee called the Steering and Capital Planning Function. And that is a group that evaluates investments as they come through the pipeline, as they have their preliminary approval, their final approval, all the interim steps in between, and we work with the development teams. Our business is really all about identifying development projects. A big piece of our business, I should say, is all about identifying development projects and choosing to invest in them and then executing those investments. And so I've been able to position my team and myself so that we are playing an integral role in evaluating those. Not just the cash management or debt raising of those projects, but also in the evaluation of those investments and helping guide the organization and its decision making process and governance around that.

And you talked about the sort of the quantitative analysis demands that places you on there. But then again, you very much impressed on me that it's not your job. Isn't about analysis. Not just, oh, here you go guys, here's some of the figures Here's a big thing. It was actually then about getting closer towards the treasury, getting closer to giving greater value to the business itself. And again, people are saying, well, how do you do that? I've done my analysis and I'm giving my information to the cfo. Or how do you actually instigate that process? Or how have you made it work?

Yeah, I would like to kind of describe that as the third phase, whereas phase two is more of a corporate overhead and continue to play that corporate governance role. What I'm trying to now accomplish in phase three is to really be as embedded in our project teams as possible. So, you know that we are a trusted, valuable resource for our development officers, that they are reaching out to us proactively, that they see us as an integral part of the process, whether it be because, you know, they're concerned that they might not be able to raise debt in an adverse capital market, or whether they want us to kind of be a second opinion on, you know, evaluating the risk metrics of the deal and identifying the top risks that are inherent in the transaction and how to effectively mitigate. But I, you know, we are now looking more and more to embed ourselves in that organization and do so. There's a balance there. It's hard because, you know, as a corporate office, you're often seen as the part of the decision making process, part of the no go, you know, go, no go process. And yet we are that. We are still that. But at the same time we have to try to say we want to support you and put up the best decision as well. So there's initial resistance because, you know, the entrepreneurial side of the business really wants to, you know, control the process and they want to make sure the process gets approved. This is their livelihood and this is how they drive the value to the company. And you have to be sensitive to that. But at the same time, if you're not, you know, you have to. The organization needs to understand that early identification of risks and early mitigation of them will help a deal prosper. And an example that I can give would be in our industrial development business in New Jersey. We are building warehouses in New Jersey. We've been doing it for some time. We have tremendous success doing it. And you know, a lot of the land in New Jersey has environmental. And if you go back earlier in the 2000 and tens in our company's history, we were reluctant to develop on land that had identified environmental issues because of the headline risk and the practical risks as well. And over time we were able to work within our team to identify insurance that could be obtained, environmental insurance that could be obtained that contained the risks. And then through thorough evaluation of the environmental concerns and how they were, you know, what the true risks were, and understanding of those risks and then directly defeating them with insurance, we were now able to develop sites that other developers might not have been adept enough to develop. And so this is an opportunity for us to buy land and make money and build buildings where others cannot. And I think that, you know, we played an integral part in that.

And we said before the show today, I had a podcast earlier this week and we're just going to constantly focus on this situation Covid and you know, 19 and everything else. But we want to bring it up because when I was talking to this chap earlier, he's in Brooklyn, Didier, he'll come out on the show shortly. One of the things we were talking about is the initial dealing with it and recognizing it for what it is, sort of that first initial right assessment of what the problem is. We talked about how, you know, there was 9, 11, which was terrorists, boom, that was it. Global financial crisis was this thing that didn't have a start end date. At least with the situation we face now, it's still something that's happening and it will pass. And it's about planning and getting through it and planning for the future and everything else. But then a lot of treasurers like yourself are coming to the forefront with corporate liquidity and lots of other things. Describe how you've been. When was the knock at the door or when did it say, right, Sam, we need your help. You're going to be front and center of this. How did it come about, if you like?

Well, what's interesting is with my treasury and risk officer role, I had kind of a mandate right from the beginning to take a look at this. And you know, early on we were working with our HR team and our legal department to see if we should put a travel advisory out to our organization. Early on we had asked them if they wanted to do that. So I think that was pretty early in the process. So we were engaged from the get go. The challenges become, from a risk management perspective, how to be proactive, how to be forward looking and to stay ahead of the wave of information that's coming. You know, you get something out to the organization day or two before it becomes more common knowledge. I'm not sure if that's actionable, but in some cases it has been. It's just that the information is moving so Quickly that it's been a real challenge to stay in front of it. But I think we've been. Whether it's the, you know, the treasury rol. You know, in the Treasury. Let me put it another way. In the treasury world, I think we've been able to, you know, really drive value in a number of areas. Whether it's economic analysis, liquidity analysis, evaluating our revenues. Maybe if you'd like, I could jump into a few examples.

Please do. I think it's great because that's what people want to understand, how you deal with it because they're doing the same. Oh, hang on. What else should I be thinking about? So. Yeah, please do.

Yeah, I think in the early stages it was all about trying to evaluate economics. You know, you know, what's the Q2 GDP going to be? Is it going to be negative? Oh, it's going to be negative. Okay. How negative is it going to be? And looking at weekly jobless claims and evaluating all those metrics to try to indicate how deep a recession was going to be. That's kind of become now forefront of everyone's mind. And two weeks ago it was news, now news to the organization. Now it's in the forefront of mind. So we've been shifting and working more through. Okay, we're continuing to monitor that, of course, but now looking at our liquidity analysis, how much cash should we have on hand? So the first message out to the organization is we have a very strong balance sheet. Balance sheet is very strong today. And getting that message out to the organization, reinforcing to the staff, that this is a company that has tremendous stability and you know, that we can meet our near term obligations and getting out to our internal employees, getting it out to our external stakeholders, but then working with the banks to kind of confirm that there isn't going to be a run on the banks, that there isn't going to be any liquidity issues and just working directly with them and then looking more internally and making sure that we're going to be able to maintain our revenue. For the Rockefeller Group, revenue primarily comes from two large office buildings that we own, 1221 Avenue in the Americas and 1271 Avenue in the Americas and having our tenants pay rent. And so, you know, we went through and our team conducted a tenant credit analysis where we reviewed all of the financial information that we could obtain on our public companies, that our tenants and our private companies, and provided a risk assessment that we sent up to the CFO and the CEO and where we, you know, highlighted one or two prospective tenants that might be at risk. But overall, basically the message was that our tenant pool is very strong and we're not expecting issues, but then continuing, then saying, keep pushing forward and saying, okay, from a lender perspective, we have construction financing we'd like to obtain in the next two months, three months, four months for each project, trying to evaluate where the financial institutions are on a case by case basis. And overall, holistically, are the banks open for business? Are they going to be able to provide us construction financing at this time? Because that's, you know, integral part of our company and the role we play in Treasury. But also then taking a broader look, shifting a little bit to the risk management perspective, we've also been, we have our top, you know, top 30 risks, top 20 risks that we look at all the time. And we focused on 10 to 15 risks that we think are very important in this environment, that we should be, you know, making sure that our risk owners are evaluating that our key company executives are monitoring and looking to mitigate directly. So we've got that message out to them and are in kind of standby if they need assistance and further mitigating those risks. And also just fraud, fraud management. Everybody in treasury is focused on fraud management today, I think, and especially in this environment when there is so much instability and there's a change in our routines where we're all working from home, we feel that this unfortunately creates a potential opportunity for fraudsters to take advantage of our new processes and our distance and our distance and our communications. So we're getting a message out next week, no later than next week, that just reminds everybody about our best practices, terms of payment processing.

Yeah, it makes everybody aware and just take that pause, you know, if you like, before they do things. And that actually brings us very nicely, without being planned, actually. So it segues into where do you see the future of treasury, you know, because treasury, you know, I've talked to this so many times, probably just to show that CFOs, I find now when I'm talking to them, they say, yeah, I, I use my treasurer as the sort of the scout. They're off out in front. I push them out front some of the times, you know, not sacrificially, but, you know, they have to do you. You do a lot of work. But what I mean by that is they say, right, could you. Ass blockchain idea. Could you assess this for me? Could you do this for me, you know, on top of your day jobs, which I think sometimes is a challenge. But what are you seeing coming at you that number one, that you think, no, we're not going to bother with that. We're going to sort of divert that after that's suited for other businesses. Well, that's an exciting opportunity or these things Treasure should be thinking about. You know, obviously you got cyber and risk and everything else, but, you know, what are your things you're thinking about for the future?

Yeah, I think that it's all about risk management and being able to be a leader in that area and harnessing your company's, your organization's resources to manage risk and to directly defeat it wherever possible and to understand and fully understand the risks that you are taking and how those risks can impact that. I think that the issues of COVID 19 right now present a challenge for everyone. But you know, to me it feels very close to home for, you know, treasurers because treasurers need to be, as I just described, evaluating the capital markets, making sure that they have access to the capital markets, making sure that they have liquidity to run the organization. Businesses will succeed or fail based on whether they have sufficient liquidity, whether their capital structures are strong enough, whether they understand their cash forecast and whether they have the insurance in place to protect them as a program. And so for me, treasury and Risk management go hand in hand. And an organization has to be not just about the revenue side and not just about growth and profits, but it has to be about risk tolerance and risk avoidance as well. And that to me is the other side of the page. To me, the two go hand in hand in terms of their strategic importance. And the treasurers across the globe have this experience. I think that the opportunity for treasury is to continue to manage their core functions and to do it well, but to use that knowledge and those capabilities to communicate to the company's senior management team and to be an integral part in navigating the company strategy, especially in times of distress.

Sam, that's amazing stuff about talking about the company and the way that treasury and Risk fits in in this, well, turbulent world. So we call it. Just as we wind up, you know, come to the end of today's show. Tell the listeners, people will look at again my, my usual closing lines of the show and this is what we're going to come to. We'll put your LinkedIn profile in the show notes. People can connect to you if you think it's right for you and everything else. Sam, as you go through there, what are the, the key tips from you that if someone wants to be, you know, have a similar career to you, what are the tips you would give to people and what are the things that sort of, you know, are emblazoned on your, your treasury sleeve, as it were?

I think that more strategic advice that I would give is to just continue to push yourself, to do more, to perform at a higher level and to champion the treasury team. I'm just a big believer, and maybe even to my detriment at times, but I'm a big believer in how integral the treasury role can be within an organization. And I am just very proud of the work that my peers do. And I think that for me, I would just applaud people and encourage them to reach out and reach out to me as needed, but find opportunities to take a larger role in their organization. And I know how challenging that can be because you have to keep an eye on the day job. You have to focus on those core capabilities of treasury that we've talked about here. But hopefully I've given some examples of where you can take that knowledge and leverage, leverage it and communicate it in an effective manner so that it becomes something that will get more appreciation and play a larger role in the value of the company. So that's, I think, the biggest takeaway for me today.

Amazing, Sam. It's been amazing, sir. With a few hiccups along the way from my side, but I think Sam was bloody good at this. Well, we're coming on to 100 episodes. Oh yeah. I'm gonna say it's one of my favorites. I think we had a really good laugh before we did the show and the pre call. Great treasury background with Rockefeller. I think you've got some really good, interesting takeaways. Ways of people today we finished on time. I loved it and this is a great show. So those listeners feel free to connect to Sam. Any comments you've got about it or your further questions, send them across Sam's way or my way and look forward to next hundred shows. And thank you for being a guest. So you've been an absolute star.

Well, thank you, Mike. That's high praise. I've listened to so many of your podcasts and you've had so many wonderful guests and so many interesting sessions. So I appreciate that and was really my pleasure to be a part of this. I feel quite honored to be a part of it and of course if anyone wants to reach out to me, they should do so. I'm happy to help wherever I can.

Thank you very much, sir.