Chapter 3
The Leader
John Allison as John Galt, the man who walked away after building America’s strongest bank
“He turned and answered, ‘I will stop the motor of the world.’ Then he walked out. We never saw him again. We never heard what became of him. But years later, when we saw the lights going out one after another, in the great factories that had stood solid like mountains for generations . . . and the world was crumbling quietly, like a body when its spirit is gone—then we began to wonder and to ask questions about him. . . . You see, his name was John Galt.”
—Atlas Shrugged
Who is John Galt?
Ayn Rand’s magnum opus Atlas Shrugged is set in a time of a growing economic, cultural, and political crisis. We hear over and over a slang expression adopted by people from all walks of life to capture their despair and resignation: “Who is John Galt?”
It turns out that John Galt is an actual person, and that he has deliberately fomented the crisis. He is a brilliant young scientist who conceived a breakthrough invention—a motor that could be driven without fuel, something of incalculable economic value that today would be called green technology. Yet he walks away from his invention, and his career.
Galt’s abdication—his “mind on strike”—is triggered when the factory that employs him adopts a managerial model based on the Marxist maxim “From each according to his ability, to each according to his need.” He believes that this collectivist philosophy, which would punish the competent and reward the incompetent, is both immoral and a recipe for economic collapse. The only moral response is to refuse to participate in such immorality—which would have the side effect of hastening the collapse.
But Galt takes his strike one big step further. He sets about persuading other men of ability to go on strike, too, giving up their work as industrialists, businessmen, financiers, teachers, artists, and doctors. He recruits them to his strike by explaining to them the fundamental moral basis of capitalism, and the inherent immorality of a culture that expropriates their talents, turning their own virtues against them.
At the climax of the book, Galt takes to the radio, revealing himself to the world and explaining his strike and the philosophy behind it. Galt’s speech is the key reference documenting Rand’s philosophy of “Objectivism.”
In November 2008, 30 days before his scheduled retirement, John Allison sat atop a black office tower in Winston-Salem, North Carolina, preparing to sign away his life’s work.
He’d spent 37 years, his entire career, at BB&T (or, more formally, Branch Banking and Trust Company). When he arrived in 1971, it was an obscure farm bank with 250 employees and $250 million in assets. Allison became president in 1987 and chief executive in 1989, and by 2008 he was the longest-serving bank CEO in the United States. Under his leadership BB&T had grown into a bank holding company with 1,800 branches sprawling over 12 Southern states and Washington, D.C., among the top 10 banks in all but one of those markets. BB&T has 30,000 employees and over $150 billion in assets, making it the 12th largest U.S. bank.
Now he was being forced to give substantial control of it to the U.S. government.
And not because BB&T had failed, as so many other banks had in the terrifying banking crisis of 2008. No, BB&T was being punished because it had succeeded.
BB&T had made no subprime mortgage loans. While other banks blew themselves up with high-fee negative amortization and “pick-a-payment” loans that supported a cancerous housing bubble, BB&T resisted temptation and wrote only conventional mortgages.
Yet after Congress enacted the Troubled Asset Relief Program (TARP), banking regulators forced even healthy banks to take government money, that is, to accept the government as a shareholder. That meant committing to pay the government hundreds of millions in preferred dividends, and giving up valuable warrants so that the government could later purchase common stock at fire-sale prices. Adding insult to injury, Allison had to sign a waiver that allowed the government to unilaterally change the terms of his compensation from the company he’d served for 38 years.
But he had no choice. BB&T was a strong bank, with more than enough capital and more than enough liquidity to see it through the crisis, and a strong loan portfolio. Yet his banking examiner from the federal government told him that the rules had suddenly changed.
According to Allison, “They called us and said, ‘Okay, we’ve had these capital rules forever, and you guys got a lot more capital based on those rules. But we’ve decided we’re going to have some new capital rules. And based on these new capital rules, we don’t think you have enough capital. Now, we don’t know what the rules are, but we’re confident that if you don’t take the TARP money, you won’t have enough capital.’”1
Allison knew that the bank examiner was just a messenger boy for his bosses in Washington, D.C., where the Federal Reserve under chairman Ben Bernanke was desperate to save a few insolvent megabanks, even if the entire banking system had to pay the bill do it.
Allison says, “There were three large financial institutions in serious trouble in the capital markets.” Presumably he means Citigroup, Bank of America, and General Electric Credit. But Bernanke didn’t want to reveal to the public how weak these three really were—so all banks would be forced to take TARP money. “He felt like if he forced all the large banks, all the $100 billion banks and over, to participate, the market couldn’t figure it out. . . . It was a huge rip-off for healthy banks.”
Allison signed. He had to. He had adamantly opposed TARP when it was being debated. He thought it was wrong. He thought it was unfair. He thought it was unnecessary. But he had to sign. A Southerner who often expresses himself in gracious understatement, Allison says, “To be forced to do that with 30 days left in your career, on something you were adamantly opposed to in the first place, was not much fun.”
For Allison, it all had a certain sense of déjà vu. Specifically, as he puts it, “It is right out of Atlas Shrugged. I mean, it’s eerie. It is eerie. It is eerie.”
And Allison should know. All his life he has been inspired by Atlas Shrugged and the other works of Ayn Rand. He explicitly created BB&T’s management philosophy on Randian principles of Objectivism, and for decades he has required all BB&T executives to read Atlas Shrugged.
BB&T is the bank that Atlas built. Its success, and its durability in a crisis that destroyed so many other banks, is testimony to the real-world, real-money impact of Rand’s value system: purpose, reason, and self-esteem. The crisis itself is testimony to the real-world consequences of the philosophy of Rand’s villains—the looters, the power seekers, and the altruists.
Like Rand’s greatest hero, John Galt, Allison chose to walk away from the looters’ world at the height of his powers. He started eyeing the exit after the 2002 passage of the Sarbanes-Oxley Act. He says, “That was kind of a precipitating event, where you were considered to be a criminal if you were in business, and that things were considered fraud that were just honest business mistakes. I mean just the whole tone changed—criminalization of honest business activity.”
Retiring at a young and vigorous 58 years old amid a crumbling banking system, Allison has left behind the bank that Atlas built. Like Galt, he’s devoting himself no longer to business, but instead to evangelism for the morality of capitalism.
No one would have predicted that John Allison, born in Charlotte, North Carolina, and raised in a deeply religious family, would turn out to be an Ayn Rand devotee, and certainly not the real-world embodiment of Rand’s great hero. As with so many Rand-heads, the conversion happened in college.
Allison was at the University of North Carolina, Chapel Hill, majoring in business administration. In his economics classes, he says, “even though my professors were largely left-wing, they actually pushed me to the right because I didn’t agree. Their ideas just didn’t make any sense. They weren’t my experience in life. So it’s funny: I think they intended to indoctrinate me to the left, and they ended up pushing me right.”
Then, between his junior and senior year, he discovered Ayn Rand.
Most people start with the fiction, The Fountainhead or Atlas Shrugged, seduced into Rand’s philosophy as they are swept away in the heady romanticism of these compelling stories and their mythic heroes. Not Allison. He started with Rand’s nonfiction masterpiece, Capitalism: The Unknown Ideal (published in 1966), stumbling upon it by chance in a bookstore.
Allison says, “I was really impressed with particularly the first part of the book where she talks about the principles underlying capitalism.” Though Rand’s philosophy was aggressively secular, it appealed to Allison’s religious instincts. “I was raised in a very religious background which put a premium on values, and derived in a religious way, so I guess in a certain sense I’ve always been interested in the issue of principles—how you really should live your life.”
He was hooked. He says, “Then from that I read Atlas Shrugged, read The Fountainhead, and then basically read everything I could get of her materials and every book she recommended.”
After getting his master’s degree in management from Duke University, in 1971 Allison went to work for BB&T in the small farm bank’s loan administration group. Amid a group of stodgy older executives, Allison’s boss was a bright young go-getter who put Allison into the bank’s management development program. But that consisted pretty much of just slumming on the teller line for a while to see how the other half lived. After 10 months, Allison’s bright young boss figured out that Allison himself was a bright young man, and challenged him to create a real management development program.
It turned out that Allison and his boss were both Rand fans. So the first thing they did in the new program was give everyone a copy of Atlas Shrugged. Allison remembers, “We got a lot of the future leadership to read Atlas. . . . It wasn’t officially required, but it was officially encouraged. . . . A lot of the best people did read it.”
By 1973 four other bright young men had showed up at BB&T, and joined Allison in what would turn out to be the leadership nucleus of a Rand-based build-out of the sleepy farm bank into a colossus. They all read Atlas and they all were transformed. Allison says, “Anybody that reads Atlas Shrugged—that comes with a general business background in particular—it does change their worldview. They may say, ‘Well, I reject this aspect of Rand,’ or ‘I reject that aspect,’ but . . . the particular thing I think almost everybody gets out of it is the destructive role of government.”
For Allison himself, Rand resonated with his personal quest for meaning in life. He recalls, “Before Rand, first I had a hodgepodge of philosophical beliefs. I was trying to be religious, but I wasn’t really active in a way that was consistent with the religion that I was taught, so I was torn in a certain sense. I made pretty good grades, but I was just doing my schoolwork to make good grades. It didn’t have any bigger meaning to me. When I saw her characters, spiritually what I got was, man, they’re purposeful and they’re doing it in ways that I could enjoy—building a business.”
Like Allison, the new leadership nucleus of BB&T were Southern-born and deeply religious. For some, Rand’s aggressive atheism didn’t sit well, and still doesn’t.
Kelly King, who has succeeded Allison as CEO, recalls that he reacted favorably to Atlas Shrugged when he first read it at Allison’s request: “I kinda liked the book. I hate big government. I like capitalism. I like productivity.” But later, on learning more, he found, “I disagree with her need to take reason to its ultimate extreme, which of course defeats all forms of mysticism and faith. I don’t find that to be productive or necessary in business.”
But Allison says, “Our agreement was to try to take religion out of the bank. This was a secular organization. People were entitled to their religious beliefs, but the bank had to be run by some secular principles. That’s the agreement with the shareholders of how you run the bank. . . . And they respected that.”
Allison became president of BB&T in 1987, and chief executive in 1989. He continued to spread the word about Rand and get everyone to read Atlas Shrugged. But the Randification of BB&T kicked into high gear in 1994. That’s when Allison discovered Objectivism: The Philosophy of Ayn Rand, written three years earlier by Rand’s longtime associate and designated intellectual heir, Leonard Peikoff.
“Though I’d read all of Rand and agree with it,” Allison says, “I really, in retrospect, didn’t truly understand it. I understood its politics, and I understood parts of it, but I never was able to totally integrate it until 1994, when I read Objectivism: The Philosophy of Ayn Rand. And that was a huge integrating event for me, because I was able to really get it from A to Z.”
For Allison “the timing was great,” because the next year came the seminal event in BB&T’s rise to dominance in the Southern banking market: the merger of equals with competitor Southern National Bank, handing CEO Allison the challenge of integrating two $10 billion giants.
It was a classic integration problem: How do two proud business cultures come together as one? And the most pointed question: Faced with the inevitable functional overlaps between two similar businesses, who lose their jobs and who keep their jobs?
The answer was Rand. After years of promoting Rand’s ideas in a general way within the bank, Allison turned them into a formal system. Most big businesses have a mission statement. But Allison took it much further. For BB&T, he used Rand’s ideas to create a corporate philosophy. It became embodied in a lengthy booklet that Allison wrote himself, and that still serves BB&T substantially unaltered after all these years.
Allison got buy-in on the philosophy from his senior leadership team. Again, Rand’s reputation as an atheist was a sore spot for some. But Allison recalls, “They all agreed with the philosophy. And this is an interesting thing: Everything in that is, by the way, in the Bible. . . . So that’s how I think the group reconciled it—they were already living it.”
As the Southern National merger proceeded, and then for all the years since, the Rand-based BB&T philosophy has been what Allison calls “a filter.” Not everyone accepts it, but the ones he wants in his bank do. “What I’ve found is that better people like the ideas.”
Allison is especially good at getting people to like the ideas. Rand herself was good at it, too, couching the ideas in novels so compelling that they are still best sellers more than half a century since they were written. Yet as much as Rand and her ideas are admired by her readers, at the same time they are reviled by critics on both the political left and the political right who accuse her of advocating “greed” and “selfishness.”
Those objections don’t seem to come up when Allison talks about Rand’s ideas in the BB&T philosophy. Maybe it’s his unpretentious North Carolina accent, his boyish wavy hair, the ever-present smile on his face, or his tendency to laugh as he speaks (he resembles a more slender David Letterman).
Or maybe it’s that Allison exudes leadership. Meet this man, and you’ll wish he’d offer you a job—because you know instantly that he’s someone you’d love working for. It’s because he believes so utterly in his philosophy, because there is no internal doubt—because, like John Galt, his is a “face without pain or fear or guilt.”
What is it like to have a philosopher for a CEO? Edward D. Vest, who rose up through the ranks to become BB&T’s chief financial officer, speaks of Allison more as a life coach than a boss. “He teaches you how to think. He teaches you the importance of purpose. Once you find that purpose, you almost get this magnificent obsession of going for something with everything you’ve got, and never letting a second go by, wasting it through evasion, through laziness, through avoiding what you know to be true. So it’s been liberating.”
At first the BB&T philosophy doesn’t look all that different than the usual corporate pabulum. The stated vision is “To Create the Best Financial Institution Possible.”2 The mission is “To make the world a better place to live.”
But then we get to the bank’s purpose, and that’s when things start to get interesting. It was “purpose” that first attracted Allison to Rand—what he finds living is all about.
Our ultimate purpose is to create superior long-term economic rewards for our shareholders.
This purpose is defined by the free market and is as it should be. Our shareholders provide the capital that is necessary to make our business possible. They take the risk if the business is unsuccessful. They have the right to receive economic rewards for the risk which they have undertaken.
A Randian creed, indeed—it brings to mind some of the more flamboyant statements by Francisco d’Anconia, the noble and eloquent defender of capitalism in Atlas Shrugged. He said that “the most depraved type of human being” is the “man without a purpose.” And he said that “I want to be prepared to claim the greatest virtue of all—that I was a man who made money.”
For critics of Rand, such statements supposedly argue for greed and selfishness. For her admirers like Allison, they are the enshrinement of the honorable matter of earning one’s living with one’s own productive work.
For Allison, all companies exist to make money for their shareholders, though most pretend there’s some other more altruistic purpose. That’s a fundamental hypocrisy that undermines a business’s relationships with its employees. Allison says, “If you throw in a value system that has some kind of altruism, which most businesses do, then people know you’re not serious, because . . . you’re not treated that way, and you can’t be treated that way.”
A typical altruistic purpose is to claim, necessarily falsely, that the business is all about serving clients—as though shareholder profits were to be sacrificed to make customers happy. BB&T turns this on its head in the statement of purpose, saying that client satisfaction is an essential means to the end of shareholder wealth creation.
. . . our purpose, to create superior long-term economic rewards for our shareholders, can only be accomplished by providing excellent service to our clients, as our Clients are our source of revenues.
If this sounds familiar to Rand fans, it should. Howard Roark, the rebellious architect hero of The Fountainhead, said, “I don’t intend to build in order to have clients. I intend to have clients in order to build.”
But does this focus on clients and shareholders mean that employees of BB&T are to altruistically sacrifice themselves? Hardly. The next point in the statement of purpose states:
To have excellent client relations, we must have outstanding Employees to serve our clients. To attract and retain outstanding employees, we must reward them financially and create an environment where they can learn and grow.
Shareholders, clients, and employees, all working to mutual benefit. Nobody sacrifices; everybody gains. Does this sound familiar, too? The great industrialist Henry Rearden explained it in Atlas Shrugged: “I do not sacrifice my interests to them nor do they sacrifice their interests to me; we deal as equals by mutual consent to mutual advantage—and I am proud of every penny I have earned in this manner.” Allison calls it the “trader principle.”
He explains, “We talk about the trader principle over and over again. . . . You never should ever take advantage of other people, nor should you self-sacrifice. What life is about is creating win-win relationships, figuring out how to get better together, and you ought to do that consciously. What’s in it for you is a fair question, but what’s in it for them? . . . And you do that internally and externally. You treat your clients the same way. You never take advantage of clients, but if somebody’s trying to take advantage of you, I’ve told our employees many times, they are people you don’t want to do business with.”
Finally, the statement of purpose brings it all together in one big integration of the trader principle:
Our economic results are significantly impacted by the success of our Communities. The community’s “quality of life” impacts its ability to attract industry for growth.
Therefore, we manage our business in a long-term context, as an integrated whole, with the ultimate objective of rewarding the Shareholders for their investment, while realizing that the cause of this result is quality client service. Excellent service will be delivered by motivated employees working as an integrated team. These results will be impacted by our capacity to contribute to the growth and well-being of the communities we serve.
For BB&T, imbuing employees with a coherent purpose isn’t just a human resources exercise. It’s a high-powered competitive weapon.
That’s because BB&T is organized as a network of 33 community banks, designed to operate in a highly decentralized way, aimed at meeting the unique needs of every individual market they serve. So typical centralized, one-size-fits-all command-and-control management techniques won’t work. Every employee has to be a self-guided missile, which means every employee has to be superlatively trained.
It’s not cheap to superlatively train 30,000 employees. To afford it, BB&T spends less on advertising than its competitors do. BB&T sees a well-trained and empowered workforce as the best advertising in a business inevitably based on service, trust, and word of mouth.
That’s why there’s BB&T University, where every year thousands of management-level employees are not only trained in the technical skills required to do their jobs, and not only trained to be more effective leaders, but also put through rigorous psychological workshops designed to eliminate unconscious barriers to excellence. For example, Allison believes that for many natural leaders, intelligence can get in their way. For some, it becomes a weapon that unintentionally drives colleagues away. For others, it becomes a wall that prevents them from hearing the feedback they need. Allison says, “If you really want to change people’s behavior, you’ve got to take them through a process where they can honestly look at their negatives.”
For every single employee, from tellers to executive vice presidents, every single day, the Ayn Rand–inspired BB&T philosophy is the cultural glue the holds the far-flung organization together—and has kept it from getting into trouble while other banks have spectacularly blown themselves apart.
Every employee is encouraged to read Atlas Shrugged. Every employee is given a printed copy of the BB&T philosophy embodying Allison’s Randian value system. Every year Allison, and now CEO Kelly King (a longtime Allison intimate), gives a one-hour presentation before all employees renewing the bank’s commitment to the philosophy.
Where the rubber really meets the road is through semiannual performance appraisals, in which every employee from top to bottom is evaluated in terms of whether he or she successfully lived the BB&T philosophy.
The bank’s purpose—to create value for shareholders—is only the jewel in the crown of the philosophy. Supporting it are 10 values that every employee is expected to bring to life every day on the job.
Value #1: Reality
Huh?
Isn’t every business based on reality? In fact, isn’t everything based on reality?
Actually, no. Lehman Brothers, Bear Stearns, AIG (American International Group), IndyMac, Washington Mutual, Countrywide, and all the other banks that blew themselves to smithereens in 2008 weren’t basing their businesses on reality. They were basing their businesses on sheer fantasy, wish, and whim—and an unhealthy dose of greed, the most unrealistic thing of all. They believed the housing market would always go up. Credit markets would never be illiquid. People with no jobs could pay back their mortgages.
As the mortgage credit bubble was inflating in the mid-2000s, Allison could see that it was all underpinned by a single key denial of reality. According to Allison, at the peak, by any normal metric of affordability, housing prices were 30 percent above any historical experience. Housing prices were simply too high, and at a certain point they just couldn’t go any higher—so they had no place to go but down.3
That was reality. And it was denied at almost every bank but BB&T. Every subprime mortgage, every exotic mortgage, every mortgage derivative—they were all based on the same denial.
It seems obvious in retrospect, but while it was happening the denial of it was a subtle and complicated thing. In Allison’s view, politicians have for years overpromoted housing in the United States, distorting economic incentives with subsidies and tax breaks to favor home building and home ownership over other forms of investment. And in the early 2000s, these distortions were amplified by the Federal Reserve’s keeping interest rates artificially low.4
Allison tells the story5 of a meeting with Barney Frank, the powerful chairman of the House Financial Services Committee and leading defender of the overleveraged government-sponsored housing lenders Fannie Mae and Freddie Mac, which did so much to put Americans into homes they couldn’t really afford (we’ll meet Frank again in Chapter 6, “The Central Planner”). For Allison, Fannie and Freddie were “a disaster you could see happening.”
He told Frank, “I know housing’s a good thing, but . . . getting them into a home they can’t afford isn’t necessarily a good thing. If that were so, then next time somebody commits a crime, instead of putting them in jail, why don’t we give them a house?” How did Frank react to Allison’s sarcasm? Allison recalls the moment, rocking with laughter: “He looked at me like it was a serious proposal.”
For the private sector, like it or not, all the government-induced distortions were reality. So in an important sense, the orgy of subprime lending that nearly destroyed the U.S. banking system was rational—it was an adaptation to reality. But that reality was, ultimately, an unreality. We’ll see shortly how the BB&T philosophy kept Allison’s bank from succumbing to it.
Value #2: Reason
Reason is a key value because it is the means by which we capture and hold the first value, reality.
What Allison demands from his employees is what he calls an “active mind”6—a mind committed to learning from experience, profiting from mistakes, and being free from evasion. That’s the kind of mind that can discover reality and profit from it.
Allison says, “The ultimate psychological sin we talk about is evasion. . . . I think everybody evades some; some people evade a lot more than others, and evasion is very dangerous. And the smarter somebody is, I think, the more dangerous an evasion is.” As Allison surveys the graveyard of once-great banks now laid low by their foolish and risky investments at the height of the mortgage bubble, he says, “I guarantee you people were evading like crazy.”
In the bubble, a key means of evasion for the seemingly smartest bankers was mathematical modeling of the economy, the markets, and the riskiness of their investment positions. Models seem on the surface to be the height of reason—they are based on numbers and run on computers, and their outputs are beautiful graphs and deep decimal precision. But in the mortgage crash, they pretty much all failed—and in some cases took down the banks that used them.
Allison says, “We were told over and over again if we just had mathematical models like Wachovia and like Bank of America . . . we would be wonderful from a best practices perspective.”7 Thanks to the utter failure of their models to capture the true risks they were taking in the mortgage portfolios, Wachovia failed in mid-2008 (it was sold by the Federal Deposit Insurance Corporation [FDIC] to Wells Fargo), and Bank of America had to be rescued by extraordinary interventions by the Treasury and the Federal Reserve in early 2009.
Has anything changed, now as we stand in the rubble of a model-driven banking blowout? Nope. “This is bizarre,” says Allison. “They still believe it. We’re still being told we need mathematical models like Wachovia’s. . . . There’s still a religious belief in mathematical models.”8
Allison thinks the models are doomed from the get-go because they are based on fundamentally incorrect notions. “They always assume normal curves, and they try to manage things to a 99 percent probability. That means there’s only a 1 percent probability that certain bad things can happen. Well, there’s an interesting thing with a 1 percent probability: Give it long enough, and it becomes certain.”9
Value #3: Independent Thinking
Allison calls independent thinking “the most important psychological decision you can make, to be responsible for yourself.”10 It’s the root of all creative achievement, and creative achievement is the root of all human progress—practically by definition.
Have you ever worked for a bank? If you have, and if it wasn’t BB&T, chances are you weren’t encouraged to think independently. Quite the contrary. Indeed, banks are known for their hidebound conformist cultures. That’s why most banks haven’t grown like BB&T has, at least not without taking absurd levels of trading risk that came back to bite them in the mortgage collapse.
At the same time as they were taking those absurd risks, most banks failed to think independently. It was a lethal combination—crazy risk taking and herd mentality—and it was imposed by fiat by banking regulators.
Allison points a finger at so-called fair-value accounting—newfangled accounting rules imposed on banks for the first time several years ago, requiring them to appraise their investment positions based on transitory mark-to-market prices rather than independent analysis of value.
“That sounds good,” Allison admits, “but there are times when you can’t mark to market because you can’t figure out what it is. And fair-value accounting violates the basic laws of supply and demand. For there to be a market price there has to be a willing seller and a willing buyer.”11 In the mortgage crisis of 2008, there were no willing buyers or sellers of so-called toxic assets—and the fire-sale prices that resulted from what few trades were done gave an unrealistically low appraisal of these assets’ worth.
Fair-value accounting violates the principle of “going concern,” Allison says, “because it assumes that everyone has to sell assets when they don’t have to sell assets.”12
Allison thinks this was “a major cause of the liquidation we had”13 because banks like BB&T weren’t willing to take the accounting risk artificially imposed on them by fair-value accounting. If they’d stepped forward and bought the toxic assets that were being sold by distressed banks, they’d have to show on their books large losses if those assets subsequently traded at unrealistic fire-sale prices, even though they knew to a moral certainty that they were worth much more. Without fair-value accounting, it would have been just the opposite. They could have booked immediate profits by buying assets on the cheap—and in doing so, they would have supported a market that was desperately looking for buyers.
There was another failure of independent thinking that contributed to the mortgage crash: the overreliance on the three rating agencies, Standard & Poor’s (S&P), Moody’s, and Fitch. Allison calls them “a government monopoly,”14 and blames their too-optimistic ratings of mortgage-backed securities for helping to transform problems in the small market for subprime lending into a large-scale systemic banking crisis.
When mortgage-backed securities that had been rated investment grade suddenly became toxic assets, the market “totally lost confidence in the ratings system.” In other words, a market that had not done any independent thinking (it had just relied on S&P, Moody’s, and Fitch) suddenly had nothing to go on. “So we had a real lockup in liquidity,” Allison says, even in “instruments that really were performing . . . because nobody trusted the ratings system.”15
Value #4: Productivity
Rand’s character Francisco d’Anconia expressed it this way: “. . . there’s nothing of any importance in life—except for how you do your work. Nothing. Only that. Whatever else you are will come from that.”
Okay, maybe that’s a bit much. For Allison, BB&T is looking for high performers who have “a gut level commitment to getting the job done.”16 BB&T wants to filter out low performers who “seek reasons to fail.” High performers “face the same obstacles” as low performers, according to Allison, but they get over them and succeed.
If the bank’s purpose is to produce shareholder wealth, then it has to produce profits. What are profits? Allison says they’re just the difference between the value BB&T creates for customers and BB&T’s cost of creating that value—“the bigger the difference the better.”17
The way you make that difference bigger is through efficiency and productivity. It’s really just that simple.
Value #5: Honesty
Honesty doesn’t mean just keeping your fingers out of the till. Any bank insists on that. With BB&T it’s an obsession with ethical conduct 24/7, complete transparency—not even a white lie, and no exceptions for the bosses at the top of the pyramid.
Allison says, “No fudging. . . . We acquired companies that had a couple leaders that really weren’t totally honest. They weren’t totally dishonest. . . . But particularly they wouldn’t disclose. They may not lie to you, but they would effectively lie because they wouldn’t disclose when something was going wrong. Well, in our organization, that’s not tolerable. So we drove that kind of leader out.”
Rank-and-file employees are glad to see less than honest leaders shown the door. Allison says, “The employees know something is going on. And once we dealt with some of these issues . . . people would say, ‘Man, I’m glad you got rid of Joe! Joe wasn’t telling you the truth about this, and he was kind of keeping me from telling you the truth about this.’”
There’s no exception for employees just because they’re making a lot of money for the bank. Allison recalls, “Our number-one mortgage producer—this was before the mortgage market busted—number one in production, number one in revenue. . . . We found out he was fudging on his reports, and we fired him. And we fired him immediately, without hesitation or reservation, even though he was our number-one producer.” It didn’t matter one bit that “most of our mortgage production is sold in the secondary market, so in a way you can argue there was no ‘risk’ in what he was doing.”
But there was risk. This sleazy “number-one producer” went to BB&T’s competitor Countrywide Financial after he was fired. Allison says, “I think he got fired there. . . . He got fired as they all went broke.” It’s no coincidence that Countrywide was run by Angelo Mozilo, whom we’ll soon meet in Chapter 4, “The Parasite.” If Allison is Atlas Shrugged hero John Galt, then Mozilo is villain James Taggart, the corrupt businessman who’d stop at nothing, even the destruction of his own company.
Value #6: Integrity
Integrity is different from honesty. It means always doing the right thing, always acting consistently with one’s philosophy, no matter what. Sometimes it can mean doing the right thing even when clients seem to be clamoring for you to help them do the wrong thing.
In the housing bubble, plenty of home buyers wanted pick-a-payment mortgages. These allowed the borrower to choose to defer payments of interest and principal each month, effectively making the amount owed to the bank larger and larger. That’s fine if the value of the underlying real estate rises, keeping up with the rising amount owed. But if the value goes down, or even stays flat, home buyers can find themselves under water—owing the bank more than the house is worth.
While just about every other bank was making a fortune with pick-a-payment mortgages because they commanded much higher fees, BB&T refused to make such loans. Allison says it wasn’t “because we had a brilliant insight on the real estate markets, but we knew real estate wasn’t going to appreciate 10 percent per year forever. That was just mathematically impossible.”
It’s not about the money; it’s about integrity. Allison insists that “one of the fundamental commitments in our mission is to help our clients achieve economic success and financial security. I would expect to make a profit doing it, but one thing I say to our employees over and over: never consciously do anything that’s bad for your client. Even if you can make a profit in the short term, it’ll always come back to haunt you. Even if he seems to want it. . . . It was really an ethical decision to do that, and it saved us a fortune.”
You might think that Allison took some career risk in making the tough call to not do pick-a-payment mortgages, turning his back on a red-hot product that was earning billions in profits for competitors. Actually, Allison didn’t make the call at all. “There’s a guy that runs our mortgages here that’s been with us a long time, that is very aligned with our culture. He made the decision on his own, without ever talking to me. Now, when I heard about it, I told him I thought it was a wonderful decision.”
Another example of integrity in action at BB&T is the way the bank reacted to the U.S. Supreme Court’s decision in Kelo v. City of New London. In that landmark case, the court upheld a city’s right to take private property under eminent domain and then transfer that property to private parties. The logic was that if the city believes that the property will generate higher tax revenues or otherwise further the city’s goals when placed in new private hands, then that satisfies the U.S. Constitution’s requirement for “public use” to justify a taking of that property.
From Allison’s perspective, the Kelo decision “threatens property rights, which is the foundation for being in our whole business.” So he decided to protest by announcing that BB&T wouldn’t make loans to real estate developers to buy or improve property acquire through eminent domain.
What happened next was a surprise. Allison remembers, “First thing, honestly, I didn’t think people would pay much attention to it.” But then, “We had thousands of people move their accounts to BB&T. And you know what a lot of them said? It was partly about eminent domain but it was partly about businesses acting on principle. People believe that businesses have no principles—they’ll do anything for a buck. And I got tons of letters saying, ‘Yeah, eminent domain is awful, and gosh, it’s nice to hear a business might do something over principle.’”
Value #7: Justice
This is where BB&T makes a key commitment to every employee. Justice, as Allison puts it, “means you’re going to award superior performance and deal with nonperformance.”
BB&T obsessively measures performance, quantitatively and qualitatively. And every single employee, right down to the teller line, is eligible for incentive compensation based on good performance.
And the reverse is true. Poor performance means no incentive compensation, though the bank will always invest in its people through training to help poor performers learn to be excellent ones. But break the bank’s values, especially in the domains of honesty or integrity, and it’s time to leave.
It wouldn’t be justice if Allison himself didn’t have to eat his own cooking. His compensation as CEO has always been mostly on an at-risk basis, determined objectively by the reality of whether BB&T hit agreed targets for earnings-per-share growth, return on assets, and return on equity.
Justice has another critical meaning for BB&T employees, who have seen their bank grow over the years by a series of acquisitions and mergers, every one of which potentially poses a threat to job security. Remembering the merger of equals with Southern National Bank that started it all, Allison says, “The justice was, if we clearly had a better person to do the job, we would get the person to do the job. Easy. But a lot of times, that ain’t so clear. Because you’ve got different inputs, you’ve got different people. . . . We were going to try to create balance between the two organizations, because part of the justice was being fair to both teams.”
This has been absolutely key to BB&T’s growth, which has been to a large extent driven by a series of acquisitions, made at the right price and then executed perfectly. Chief operating officer Christopher Henson recalls, “Prior to Southern National, we had built up over the years a preferred acquisition status because we had a no-layoff policy.” But all that had to change when BB&T did deals where “we were going to have to have 35 percent to 40 percent cost saves.”
Yes, in those situations jobs would be lost. But, according to Henson, “I think the market understood, the acquired understood, that we would take a wholesome approach, as wholesome an approach as one could with the employee base. . . . Social issues get in the way if you don’t have a culture that focuses on doing the right thing.” And when social issues don’t get in the way, everybody wins. According to Henson, because BB&T was a trusted acquirer, there were many acquisitions when other banks without a well-trusted value system were willing to pay more money, but BB&T was the one that got the deal.
Finally, there is one more meaning of justice for BB&T, perhaps a somewhat special meaning considering that it operates entirely in the Southern United States. The BB&T philosophy’s section on justice states unequivocally, “At BB&T, we do not discriminate based on nonessentials such as race, sex, nationality, etc.”
In today’s politically correct business climate, how refreshing to see BB&T characterize race, sex, and nationality—which have become obsessions in the workplace and everywhere else—as “nonessentials.”
So what’s “essential” at BB&T? No politically correct compromise here: “We do discriminate based on competency, performance, and character. We consciously reject egalitarianism and collectivism.”
Value #8: Pride
Ayn Rand’s most admired philosopher was Aristotle, and Aristotle’s most admired virtue was pride:
Pride, then, seems to be a sort of crown of the virtues; for it makes them more powerful, and it is not found without them. Therefore it is hard to be truly proud; for it is impossible without nobility and goodness of character.18
Note well that the bank’s value of pride is not talking about arrogance. Aristotle would have called that “hubris,” about which he said:
As for the pleasure in hubris, its cause is this: men think that by ill-treating others they make their own superiority the greater.19
Or as Allison puts it, pride is “the greatest of all virtues, because to have it you had to have all the others.”20 He wants BB&T to be proud of its employees, and every employee to be proud of BB&T. “This requires that the company and its employees live the values consistently. ”
Value #9: Self-Esteem
At first blush, self-esteem may seem to be the same thing as pride. But it’s not quite the same. In the BB&T philosophy, pride is what you earn by living your values, and self-esteem is what you earn by doing excellent work.
So the BB&T philosophy is clear that employees are expected to work hard for the company. Again, there is nothing politically correct about it: “If you do not want to work hard, work somewhere else.”
Value #10: Teamwork
After celebrating the intensely individual values of pride and self-esteem, it may seem strange—even a bit of a compromise—for BB&T to talk about teamwork. But there’s nothing in the Randian worldview of intense individualism that says that individuals can’t work together.
Quite the contrary. The best teams are made up of proud individuals brimming with self-esteem. Think about it: Who would you rather have on your team? Winners who have earned their pride and self-esteem, and who can help you become a winner, too? Or would you prefer losers with no pride and no self-esteem?
The answer to that question may say a lot about whether you have pride and self-esteem.
The false paradox of individualism on the one hand and teamwork on the other ties into Ayn Rand’s concept of “the virtue of selfishness.” In her celebrated and reviled essay of the same name, she answers the question most often hurled at her by her critics:
“Why do you use the word ‘selfishness’ to denote virtuous qualities of character, when that word antagonizes so many people to whom it does not mean the things you mean?”
To those who ask it, my answer is: “For the same reason that makes you afraid of it.”21
Allison, being a businessman first and a philosopher second—unlike Rand, who was a philosopher only—uses less provocative language, more eager to persuade than to rebuke. He talks about pride, self-esteem, and teamwork, but these are all tied together by the idea of self-interest, or “selfishness” if you insist.
In the language of Rand’s hero John Galt, the idea is that “By the grace of reality and the nature of life, man—every man—is an end in himself and lives for his own sake, and the achievement of his own happiness is his highest moral purpose.”
This means that BB&T’s employees don’t exist to serve its shareholders, and its shareholders don’t exist to provide a living for its employees. Together, the shareholders and the employees don’t exist for Barney Frank to provide housing to people who can’t afford it. The shareholders and the employees, each individual among them, exists for his or her own sake.
So when they come together as a team—the shareholders committing their capital and their risk, the employees committing their time—it is a voluntary arrangement to mutual gain. It’s Allison’s “trader principle.”
When Galt says “by the grace of reality,” what he means is that no other arrangement is really possible. Any other arrangement, one in which people did not exist for their own sakes, would mean that someone was being made to do something against his or her will. Such arrangements are no better than (indeed no different than) “might makes right.” And in reality they are inescapably a formula for savagery.
Arrangements not based on “selfishness”—that is, not based on pride and self-esteem—can only be based on some degree or form of slavery. “Selfishness” in Rand’s sense is a synonym for “self-determination,” for “freedom.”
Applied to a business like BB&T, a business dedicated to attracting people who are unashamedly proud of themselves and possessed of great self-esteem, and interested in trading their skills with others like them, it’s a synonym for “success.”
Do pride, self-esteem, and teamwork—people coming together for their own sakes—mean that it would be wrong to be charitable?
Hardly. Allison and BB&T are big boosters of the United Way. Allison says it’s in his own self-interest: “I wouldn’t want to live in the kind of community that would exist if there weren’t a United Way.”22 And he doesn’t think his own admitted self-interest makes his charity any less charitable. He says, “Because I believe it’s in my own self-interest, I give more, and I give more consistently.”
At the same time, Allison is very clear that “charity is secondary.” He says, “Producing is more important than giving away, because you have to produce before you can give away.”23
He sees what extremely wealthy men like Microsoft founder Bill Gates (whom we meet in Chapter 5, “The Persecuted Titan”) and mega-investor Warren Buffett have done, giving away much of their great fortunes to charity—and in the case of Gates, devoting his considerable intellect to the administration of that charity. Allison says, “Gates’s great contribution was creating Microsoft, and the world is worse off that he’s not focusing on making Microsoft better. What if Thomas Edison had quit when he was Bill Gates’s age? What would we have lost?”24
We’ll see. Maybe Gates’s genius—and his money—really will solve some of the world’s problems. Allison is skeptical. “Because of comparative advantage, what he was special at was computers, not solving poverty in Africa, but maybe he’ll get lucky.”25
After John Allison signed the document surrendering substantial control of BB&T to the whims of the federal government, after he put down the pen, after he rode down the elevator from the top floor of the tall black building in Winston-Salem and walked into the chilly November night—after he walked away from the world—where did he go, and what did he do?
Rand’s hero John Galt, the man who walked away from the world, went to Galt’s Gulch, hidden in the mountains of Colorado, and recruited other great minds to join him on strike against the looters, the power seekers, and the altruists. Allison hasn’t exactly done that, but in his own affable Southern way, he’s done something almost as subversive.
Instead of Galt’s mountain fastness, Allison can be found on Wake Forest University’s leafy campus, in a small office crammed with books by and about Ayn Rand, teaching courses in leadership and directing a growing campaign to teach the morality of capitalism in America’s colleges. Like Galt, he’s spreading the word.
It started when he was still at BB&T. He recalls, “For years, banks have been big contributors to community projects. It’s kind of expected in the business, and it’s probably a legitimate part of the business, because a lot of our clients are involved in stuff and those kinds of things. . . . Our focus . . . has always been on education. So we were a pretty big contributor to universities.”
Which makes BB&T no different than any other bank. But John Allison is very different from other bank CEOs—he’s a Randian. So when he asked himself, “What is the issue that maybe we could have a big impact on?” there was just one possible answer: “Capitalism.”
Allison wasn’t interested in helping universities teach economics. He was interested in helping universities teach the morality of capitalism—the philosophy underlying it, and the reasons why it is the only way of arranging economic affairs that is consistent with human freedom.
“There’s really no economic argument against capitalism,” Allison says. “We’re just losing the ethical fight. . . . And ethics always trumps economics.” In other words, no matter what heights of wealth and advancement capitalism leads the world to, it seems there’s always somebody complaining about the brutality of its innate competitiveness or the unfairness of the inequality it produces. So the system that abolished slavery from the face of the earth and makes it possible for 7 billion souls to live on it is nevertheless always under political attack.
“So we’ve got to have an ethical fight,” decided Allison. “And of course, based on my beliefs, I said, well, we’ve got to get Rand into the fight.”
But that wouldn’t be easy. Rand considered herself a serious philosopher, but she’s scarcely taught in university philosophy departments. Perhaps it’s because she chose to express her philosophy in accessible popular novels rather than in impenetrable textbooks. Or perhaps it’s because she has always been seen as a political conservative, something not exactly embraced by today’s liberal-dominated college faculties.
“Rand has obviously been consciously not included,” Allison claims. “Academics, they don’t want her in. They’re scared of her, in my opinion. She’s threatening.”
So Allison decided to build an entirely new academic initiative for the advancement of the morality of capitalism, with Ayn Rand at its heart—just as decades earlier he had set out to build a banking empire the same way. “We started working with a number of universities,” he recalls. “Our first program was at Duke and we did something at Carolina. They’d agree to require Atlas Shrugged, and we’d say, okay. If they want to teach it and say it’s stupid, that’s fine. I’ll let the students read it and make their own judgments.”
Building an education revolution takes time, just like building a bank did. “We’re now up to 60 programs,” Allison says, beaming. “Almost all of the major universities in our footprint now, and lots of other colleges and universities. . . . And I get really positive feedback about this. I have talked to numerous students who have said, ‘Man, this course changed my whole worldview, and I am a better human being for it.’”
John Allison also has a long list of Randian recommendations for repairing the American economy in the aftermath of the mortgage crisis that nearly destroyed it.
He’d like to see the Federal Reserve stripped of its limitless powers to print money, and return to an objective standard of monetary value such as gold. He’d like to see the tax code transformed so that consumption, not investment, is taxed. He’d like to see Social Security, Medicare, and education privatized. He’d like to see immigration liberalized so that the best and the brightest can come to the United States. He’d like to see banks given more stringent capital requirements, and have them return to more traditional forms of mortgage lending.26
Most important, he wants to change the culture. He wants the attacks on capitalism to stop, for capitalism to be embraced as the most effective and the most moral system of economic organization. And it’s to that most important objective that he’s devoting his attention now, through his sponsorship of university programs on the morality of capitalism.
Can he win? Can capitalism win? Can Ayn Rand’s ideas win? At least for Allison, they’re winning the war on the home front. He says, “My son read a lot of Objectivist stuff, seemed to agree with it, went away to college, and became very down on Objectivism. Then he graduated from college and took a couple months after he graduated, reread all the stuff, and said, ‘Wow!’ He said, ‘You know, Rand’s right.’”
So perhaps there’s hope. Maybe someday Allison will return from academia to the world and, like John Galt, raise his hand over the desolate earth and trace in space the sign of the dollar.