Navigating Risk: A Conversation with General (Ret.) Stan McChrystal

ANDY SIEG: Hi everyone, I'm Andy Sieg, President of Merrill Lynch Wealth Management. On behalf of all of us at Merrill, I'm thrilled to welcome you to a special conversation with a patriot, a leader, and a longtime friend of mine and our firm, Retired General Stanley McChrystal.

 

Stan had a remarkable career in the Army after graduating from the U.S. Military Academy at West Point. He eventually rose to the rank of four-star general and commanded various elements of our Nation's premier fighting forces, including the 75th Ranger Regiment, and the Joint Special Operations Command, as well as all International Security Assistance Forces in Afghanistan.

 

Since his retirement more than a decade ago, Stan continues to lead in the private and public sectors. He founded the McChrystal Group in 2011, where he and his team advise business leaders, including us here at Merrill, on how to transform organizations to succeed in challenging, dynamic environments.

 

And he teaches one of the most sought-after seminars at Yale University on leadership, where he's also a senior fellow.

 

Stan's the author of several books on leadership, including his newest, "Risk: A User's Guide."

 

And last but not least, Stan still manages to find time to spend with three of the most important people in his life, his granddaughters, Emmie, Elsie, and Daisy. So Stan, welcome. There couldn't be a better time to have this conversation. The markets, of course, are a wild ride, and each day seems to bring a fresh reminder that we're living in very volatile times.

 

We've seen so many disruptions in our lives and the markets, including inflation, the pandemic, geopolitical conflict, interest rates, and more. So it's only natural for investors to have questions and to want to make impulse decisions regarding life and financial matters.

 

So I'm delighted you're joining us to share your perspective on how we can all manage and not let emotions overrule reasons. So, welcome.

 

STAN MCCHRYSTAL: Well, Andy, thanks for having me and as a friend. I'm also, which you didn't mention, I'm a longtime client. What little wealth I have, you and your team manage, and I'm deeply appreciative of that because I trust you. And that says it all from my standpoint.

 

ANDY SIEG: Well, Stan, thank you very much. Thank you for the client relationship. And I'd love to dig in here and start. We have many people watching the conversations who lead in different aspects of their lives. They lead their families, teams, businesses in their communities.

 

Just thinking broadly, how would you recommend that we navigate uncertainty in our personal and professional lives?

 

STAN MCCHRYSTAL: Yeah, I would tell you how I think about it. And the first is there are certain things that we can see on the horizon. And then, there are many things that are out there, but we know new threats, or challenges, or opportunities will arise. There tends to be a desire to feel like we're doing something at every moment. You know, like, we've got to be making a decision and selling assets, or moving military forces, or whatever.

 

And I would tell people, sometimes the best thing you can do is, first, take in information, educate yourself constantly, understand what the situation is, how it is evolving. At the end of the day, that's probably the most valuable thing you can have is perspective. But then also, do those things you can to prepare.

 

Good military forces, even in combat, do a tremendous amount of training. That's sort of counterintuitive for people. We would go out on operations and we would do raids at night, you'd come back, and then the next day, we are training.

 

And people go, "Well, why would you train? You're already at war." It's because you're always trying to build up that capacity, so for the next moment when something is very different, you've done those things you can.

 

Now, you don't always know very specific things to train on, but you know if you get yourself in good physical condition, if you can shoot, if you can communicate well, if you've got strong relationships on your team, you've got a foundation of resilience that will do you well in any situation. I think that applies individually, organizationally, and societally as well.

 

ANDY SIEG: In the current environment, what do you think we can learn from how leaders and the public are reacting to what's happening in the world around us? And, in particular, you've written about it. Of course, it's core to your book. We talk about emotions in this environment.

 

How do you make decisions in a way that  we're not letting emotions overwhelm us? We're doing the things in our best long-term interests.

 

STAN MCCHRYSTAL: Yeah, there's a real tendency to either get angry or to get euphoric about certain things that happen in the world. As senior leaders, we've got to avoid that. What we've got to do is create ourselves a strategic framework. Where are we trying to be at a point in the future? Call it 20 years down for about as far as nations can probably see.

 

And we know that we want to be in a world where we've got strong alliances that support our security, support our access to critical resources around the world to include markets that we want to deal in. And so, I think the best leaders take that kind of view and say, "What do I have to do to create that?" Some of it is a relationship with leaders of other countries.

 

Part of it is our credibility and legitimacy in the world, how we as a nation or businesses conduct ourselves. The biggest thing that I worried about in the departure from Afghanistan was not the 20 years of effort that went in. Although we were disappointed in the outcome.

 

It was the perception that potential allies might have that says the United States is not as credible, a partner for the future. And so, whenever we think about how we operate in the world, we need to think about the next move.

 

What relationships are we building? What capacities are we constructing? So that a year from now, two years from now, we've got the sinew of an environment in which we will do better than we would otherwise do.

 

So I think senior leaders have got to take that view in the diplomatic side, in the military side, and in the economic side to build up all those capacities that give us the options we need.

 

ANDY SIEG: Let me jump to a topic that's underlying what you just talked about, which is risk.

 

And... you know, do you see things in today's risk landscape that are fundamentally different from the world we grew up in? And if so, are there different things that we should be doing to operate and navigate this environment?

 

STAN MCCHRYSTAL: Sure, there are some things that have changed pretty fundamentally and I would start first is, while the world was always a small place theoretically, it's tiny now because cyber allows people to reach in instants. And also, other kinds of weapons and even pandemics can move so quickly.

 

Suddenly what was once far away and interesting theoretically, is now very realistic to us, the movement of migrants, the movement, obviously, of products and whatnot.

 

So that globalization, even though we're going through a period now where we're rethinking how globally connected nations will be, it's a reality we cannot ignore. It will recede a bit temporarily, but we're going to be connected. So my point is everywhere matters, everywhere in the country, the stability of every country matters, and the rule of law in every part of the world matters.

 

The next would be the democratization of technology. Even a few years ago, things like precision weapons, of course, cyber, Global Positioning System, night vision, all of those things, unmanned aerial vehicles, they were all things which were curious and powerful, but were really only accessible to great powers, big nation-states.

 

Now, everybody can have night vision and precision-guided weapons. You can buy an inexpensive drone, put explosives on it, and you literally have a precision weapon at a cost any individual can afford. And so, the change in technology makes a lot more things possible, but it makes a lot more things vulnerable as well.

 

We are extraordinarily connected, and the counter-side to that is we're extraordinarily dependent upon those connections, and therefore vulnerable.

 

And then, the last thing, the cost of information distribution has gone to zero, meaning at one point you really needed access to large newspapers or other things to get your story out. And therefore, it was controlled by certain people.

 

Then, of course, it got less expensive now because of a lack of digital capability. Anybody can propagate their message and have it go viral almost instantaneously. There's no filter on that. There's no control on that. And there's no editorial board that looks at all the things and goes and decides what's true and what isn't.

 

And really what's happened, the responsibility now is on the recipient. Each of us is bombarded with this range of information, and we have to figure out what is true and not. And the ability to create false realities, as you've seen, is tremendous. So there are some very fundamental changes.

 

If we think the way we used to, then we are behind the capabilities of the environment in which we are operating, and that's true of organizations and individuals as well.

 

ANDY SIEG: Stan, I'm going to shift gears a little bit and take us in the direction of decision-making when you're faced with a lot of crosswinds. We've seen the economic environment change dramatically several times in the last few years.

 

We've seen the market environment become much more challenging in the first half of 2022.

 

When you're in a decision-making role, and you've got the context and the backdrop for decisions shifting very quickly, are there rules of thumb that you use as a leader and a decision-maker to keep your orientation?

 

STAN MCCHRYSTAL: Yeah, there sure are. The first thing is I hope that before the crisis, and we're always in a pre-crisis mode because they're always going to be crises in the future, hopefully, I've worked on things that are going to be important, and that's the ability of the organization to communicate, to pass information accepted as credible and whatnot.

 

The second is the power of our narrative. And a narrative is what we say about ourselves as an organization, and it gets to values. It gets to the reason why we do things. And so, the validity of that narrative, people must believe that what we say about ourselves is actually how we conduct ourselves. And then, of course, leadership.

 

But when you get into the moment of decision-making, I think there are several things to remember. The first is to gather as much information as you can and identify what the factors are around. But then, second, what decisions do I need to make? What is the actual decision here? And sometimes you'll find there's not an actual decision, there's no requirement to make a decision to do something.

 

The decision may be not to do anything. You educate yourself around it and you identify the decision is what you need to. And if you need to make a decision, put a timeline on it. And this is something a lot of people get wrong.

 

If you think about a decision, you think about when do the actions I decide to take or not take, when does their impact have to be felt? And you back it up from that and say, "How long will it take to implement from when I make the decision?"

 

And then you say, "When do I have to make that decision to have the outcome happen in time for either the risk that's arising or the opportunity?" Suddenly you realize, sometimes you find out, "I need to make the decision right away." Other times you find out you've actually got a lot of time.

 

And there may be no advantage in rushing the decision. It can be unnerving not to make the decision because sometimes senior leaders feel like, "If I'm not pulling the lever or pressing a button, then I'm not doing my job." Sometimes you've identified these and you'll say, "I will make this decision at the appropriate moment."

 

And then, I will also identify, "Should I make it or should that decision be someone closer to the problem?" The last thing I'd say is decisions fall into two categories. And it's not absolutely divided, but one is big strategic decisions for which once you've made them, there's sort of no going back, so you spend a lot of time thinking about them.

 

And other decisions are of lesser importance and you can reverse them or the cost of getting it wrong is not that great. And you shouldn't spend a lot of time on those. In fact, you should decentralize the small ones. The big ones, you should think about. Make it the appropriate time and communicate to the organization the level of conviction to that decision.

 

One of the great weaknesses in any organization is where you make a decision, and then you rethink it, you go back the next day and say, "No, we're not going to do that," pretty soon everyone in the organization doesn't believe any decision.

 

They say, "I'll wait until tomorrow to see if they reverse it." Now, some decisions should be reversed if new substantive information arises. But the way we do it in my firm is we have two phases.

 

The first phase is we gather information, we get all the stakeholders to get their say, and at the end of the first phase, we make a decision. The second phase is implementation. And the rule is...you can only raise new information in phase two to revisit the decision, if it's new different information that wasn't available and it's really substantive.

 

If you just didn't like the decision, and you want to go back to the boss and say, "Hey, I really want you to do this," that's a foul because it creates- it undercuts every future decision that we make.

 

ANDY SIEG: Stan, it's uncanny as you talk about this, how many similarities there are to the way that we try to work with clients around managing their financial affairs.

 

Because it's the importance of having a plan, the importance of having a process in terms of keeping that plan alive and implementing it, and then the importance of a partner because making decisions is very challenging when the environment is shifting and you're balancing emotion and reason.

 

And so, I'm sure that our clients took many parallels away from what you just covered as well. And on that front, we asked some clients for some of their questions and things they'd like to hear you talk about. One of the first things we got back is an encouragement that we publicly thank you for your extraordinary military service, so thank you.

 

And then, a question was, you know, on the back of your career, when you look at the state of the U.S. military today, how do you feel about the health of our fighting forces? You know, we- we... we've become conditioned to the U.S. military superiority.

 

And... maybe a few observations around where we stand today.

 

STAN MCCHRYSTAL: Yeah, that's a really important issue. I'm going to start by saying the United States military is still, by far, the best military in the world, not just in a capability technologically or economically behind it, but also in terms of training and culture.

 

Some of the problems we've seen the Russian forces have in Ukraine are cultural. It's a top-down commanding control environment. They found they couldn't do some of the basic things well just because the culture and the way they operated.

 

And the United States military is not without issues, but it's vastly healthier and stronger than that. And, of course, for all the downsides of the wars in Afghanistan, in Iraq, and whatnot, there's extraordinary on-the-ground operational experience.

 

Now, there are some considerations that people need to remember about the world as it is right now. The first is our defense budget is enormous, but there is no other nation who has to do the breadth of things that we do. China essentially worries about the area around China.

 

Russia worries about the areas around Russia. Other nations have pretty narrow defense focuses. We've got this global requirement, and we can say that we don't want to be the world's policeman, but the reality is our role in the world demands it.

 

And we also, long-term, benefit economically and politically from it. We've got this extraordinary span of things we must do. Now, I talked earlier about technology, where we had some real advantages in our ability to produce high-tech weapons and whatnot. And the reality is that gap has narrowed dramatically.

 

China has been able to produce weaponry now that's not superior to the United States, but it is now a competitor, a realistic competitor. For 71 years, since Taiwan was occupied by the Chinese nationalists in 1949 China talked about wanting to retake Taiwan but, they never could militarily do that.

 

Now there's a question mark. We have the capability to probably make that impractical but, it's in play, they've got enough weapons, they've got enough capability, they can do enough damage, and so, the reality is we're in a geopolitical environment where our supremacy can't be assumed.

 

We're far stronger than Russia, but Russia's there, next to Ukraine. And so, there's a geographic advantage that comes to it.

 

So, what we have got to think about is first, maintaining our capability that we have which is impressive, but we have got to really lean into things like artificial intelligence, hypersonic weapons, the space force is critical because as much as we wish it, space is essential to any combatant now for global positioning and all the things.

 

And, we have got to ensure that if we let other nations get too close to us, we invite confrontation. That the way we stay most secure is to make it sure for the part of a potential competitor that they will lose.

 

ANDY SIEG: Could you extend where you would talk a little more specifically around your assessment of what's taking place in Ukraine maybe some thoughts about potential outcomes, and of course, your view around NATO and NATO's response and the discussions that have been happening.

 

STAN MCCHRYSTAL: No, and thanks Andy and I think we need to think about this in a business sense, financial, because it is changed the world. February 24th, was an inflection point bigger than 911, bigger than the arrival of the pandemic bigger than anything in our lives, except perhaps the fall of the Berlin Wall.

 

Which, ended the Cold War as we knew it. And so, I would say everything is now different we have gone back to a geopolitical environment which is more like the 1930's than anything in any of our lifetimes. Which means, that we are going to have global competition and some of that will be wars in a way that we just kind of thought was past.

 

We just didn't think for many years that it was likely that we would have civilized nations in Europe fighting, but of course we see it, it's got a visibility that looks a lot like World War II. What has happened is, Vladimir Putin is absolutely viscerally convinced that he has got to control Ukraine as part of Russia, not as Soviet Union but as part of traditional Russia.

 

And so, to see it slide to the West, potentially join the EU or even worse in his mind, join NATO is an existential threat to Russia. And, many Russians share his opinion he is not the only person. So, we've got to understand this is just not a foreign adventure for them, it is something really important.

 

And, they're prepared to pay for it. Now, they tried to do a sort of ham-handed what we'd call a coup de main, a sudden strike when they went in, in February and they tried to seize airfields around Kyiv and basically caused the Zelensky government to fall in which case he would get regime change.

 

And it didn't work. And so, they embarrassed themselves for about the first 45 days because they didn't operate very well, the Ukrainians leveraged some technology Anti-tank weapons and Unmanned AFV's vehicles. And the Russians sort of looked like stooges. And we all laid back and we patted ourselves on the back and said, look we feel really good because the Russians aren't any good.

 

Well, now they've slid around to the East, they have a ten-to-one artillery numerical advantage to the Ukrainians, and they are literally doing combat by pulverization. Now this is, reminiscent of what they did in the 2nd World War.

 

They of course lost early in the war, and then they built up this capacity toward the end of the war as they rolled into Germany, and at one point for the assault on Berlin they had an artillery piece every 13ft upfront. Artillery piece and they'd throw out just these massive barrages.

 

Well, they doing that to Ukraine, not quite to that number but with now more precise weapons. And so, you are seeing like a moving sledge hammer. And so, the reality is I of course believe that Ukraine should survive and it's going to need our help to do it, but I think this is going to take a lot more support from the West than we might hoped a month and a half ago.

 

And, I think that, there will be a tremendous amount of pressure put on Western European countries particularly economically to try to get a political settlement so that the war stops.

 

And, we may find that, that, that pressure really grows and pushes on Ukraine I would argue that the best thing that's come out of this has been unity of the West so far.

 

The idea that Sweden and Finland are going to join NATO I mean those are just tremendously positive things because for the long-term that unity is so important. But, I think in the near-term and the foreseeable future we are going to have to be prepared to be more stalwart, more resolute in facing down Vladimir Putin than we would like to have to be.

 

And, I think it's going to be very dangerous for quite a while.

 

ANDY SIEG: The pandemic of course touched our lives in so many different ways, and among them, the way we work, the way we lead, you know, what we do for leisure it's all been changed dramatically and you know, many of our clients are, they're in a workplace they may be a business owner, an executive, I'm sure they're trying to get the balance right between using zoom and webex versus face to face.

 

Any observations around this emerging, kind of post pandemic operating model that we're all trying to figure out?

 

STAN MCCHRYSTAL: Wow, you just pushed my button Andy because this is something I'm pretty passionate about I would say first is, when the pandemic hit and we suddenly went largely virtual not completely because a lot of jobs couldn't but largely virtual we were shocked at how well we were able to do that.

 

And I think, we connected people and it worked and we had that sort of nervous moment, is it really working and then it did. And then, we started to develop a bunch of conclusions that said, okay this is the new normal, people can live anywhere they can work from home or wherever they desire and we'll be even better we're more efficient.

 

I don't think we know that yet and I would start by saying, the thing that's going to tell us in the long-term is the market. Because when all organizations had the same challenge with COVID, then you saw everybody do the best they could under COVID.

 

Once COVID has receded as it is now, some firms are going to find a model that is more effective than other firms do. And, in some cases they may be able to get retained talent more, they may be more flexible, whatever it is and the market place over time will tells us, but it will take some time to sort that out.

 

In the interim I offer a few observations. The first is that, what I've found is, organizations are far more efficient together.

 

When you stand at the coffee pot you can have a conversation, make a decision in seconds that otherwise takes a week to schedule a zoom call 30 minutes to do the zoom call, and then, do it and then you've got to propagate it and so while there's a certain efficiency in not having to travel and not having to drive to work there are things that happen in that interaction.

 

The second is, how do we learn? Most of us learned by watching peers or near peers, sometimes watching our bosses or even our subordinates. We watched their behaviors, how they did things, we emulated the ones that worked, and we avoided the ones that didn't. Much of that was just unspoken.

 

It was things that you saw and all. I think that, during COVID we used a lot of that muscle we built up, in relationships and in learning. And during the COVID period, particularly new people didn't get that. And so, I see a tremendous challenge in many cases, particular for newer employees younger people that come in because that part of the experience wasn't as strong.

 

And, shame on us if we start to think it's not important. That you know, we can just put people out in their living room or their kitchen of a small apartment and they're going to develop as fast as somebody else. Because it's just not my belief.

 

Then, there's the question of we like to deal with each other, we like to look people in the eye, we like to trust people, I know with clients or friends or even co-workers, there is a visceral satisfaction that comes from the full range of interaction. And as good as our digital systems are now, they're not that.

 

And so, as we think about team building, as we think about connectivity to an organization, we're in this tension, because people would like to live where ever they want to live, because it's convenient for them to do that and I certainly respect that but that's a tension with that, all the positives they get of being in close interaction with people.

 

So, how do we get the right answers, I think are going to be different for every organization, but they're going to be, organizations are going to experience with the balance. How much time we get together and make that time really good. And then still make it possible to go to a beach house and work from there or something.

 

The final point I'd make is, and I bet a number of our listeners today are going to live this. Right now I'm caught in this both ways. Meaning, we're open again so I travel a lot and yet the virtual part consists.

 

So, before when I travelled when I got to the airport there was an hour to kind of get my mind straight and then on the flight, or if I'm on a train, Nowadays we pack things, I'm in the airport waiting room and I'm doing a zoom call. I'm doing this, or I'm on the train and I'm doing hours back to back of video calls.

 

I did a ride with my wife last Friday up to a wedding in Connecticut, I spent five straight hours on video calls, while my poor wife is navigating the traffic of the New Jersey turnpike. I will argue, that's not the right outcome. We are going to have to get something that understand you can't, you can do it, you can't do both.

 

You can't do everything and we're going to have to respect that for our teams, or we'll burn them out.

 

ANDY SIEG: I spoke in the introduction a bit about your organization in the McChrystal Group and the partnership that we've had at Merrill Lynch and more broadly at BofA, and the team that you built at the McChrystal Group is largely, but not exclusively veterans, and therefore you've done an amazing job taking military veterans and then translating skills to have a real impact in the business world, in the non-profit world with some of your other clients, again, many of our clients are lead organizations and they're hiring.

 

Could you say a word or two about how to think about some of our veterans and what they can bring to other organizations after their military career?

 

STAN MCCHRYSTAL: Yes, thanks for asking this. If you go back, 70 or so years to World War II and a vast majority of people were touched by the military in some way, they were in it, or their parents were, or their spouse was, and so, the familiarity with the military experience was pretty broad and deep, and earlier wars did that as well.

 

Starting with the rise to voluntary army in the 1970s we actually created a pretty narrow professional military.

 

Now, to be in it was really great because you know, everybody was sort of in the business, in fact most of the young officers and NCOs I ran into were often the sons and daughters of people that I worked with in the military so, it started to become, to a great degree a family business.

 

Again, that's comfortable but, it's actually not very healthy because you started to get the military being a hermetically sealed separate profession. And what that means is, many people in the civilian world haven't been in the military and don't have direct connections to it.

 

And, the military hadn't been in the civilian world and so when it's time for a military person to leave service, whether it's after three years or thirty years, they don't have any familiarity with the business world. I knew nothing, I came out after 34 years, I knew nobody and nothing. And, I was terrified of the business world.

 

Because, it was like going into a place where the language was different and people had done accomplishments that I hadn't done. And I think, that is true for almost every veteran. And, we've also come in later so we're behind our peer group that's in business.

 

So, when I speak to business owners and people, I would say the first is remember that veterans all came from our society they were just the kid you knew on the local high school, football team years ago, they just went off, now they're coming back.

 

What they're coming back with, is maybe not experience in financial management, or something like that, but they've got experience, they've led people, they've made decisions, they know when to get up in the morning, they know how to do certain basic things, and they're trainable and everything and so, the first thing we've got to break down is just that hesitation, that idea that says, what could a former marine do in my organization?

 

Then, you step back and say, well what does my organization really need people to do? They need to lead, they need to work with people they need to... And guess what? Somebody who's done effectively in the military can likely do all of that. And, we've also got, the military doesn't do a very good job of preparing people either.

 

Because the military focuses on its mission and Department of Defense has some programs, but the reality is the Department of Defense thinks about the future of the military, not about people after they've left so, it's really up to businesses to say, how am I going to leverage that talent? And, I would ask people never to make it a charity or mercy hire, don't hire veterans just because you want to keep them off the street.

 

Only hire for the good of your firm, because at the end, that will one, prove true and it will also be a good forcing function on veterans to be in a market driven situation.

 

ANDY SIEG: Stan, thank you for sharing your insights and expertise with our clients what a terrific conversation. You are truly a role model, and someone, I think all of us aspire to be like in our own lives. We're going to take the lessons you shared today to heart as we move forward. And, I want to just wrap up by expressing my thanks. We just have deep gratitude for your service to the nation.

 

You represent the best of the best and of course to quote, West Points motto, 'Duty, Honour, Country'. That's you and we've been incredibly lucky having you lead our nation’s military, there are so many key moments in time and you know, closer to home at BofA and Merrill Lynch, again thank you for the partnership, you and your whole team.

 

And again, we're just happy you're continuing to guide us and to be a voice for so many values that we all hold true, so thank you.

 

STAN MCCHRYSTAL: Entirely my honor Andy, thanks so much. 

 

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