Roger W. Ferguson, Jr.

What is the outlook for the global economy, as you see it today, and how confident are you of growth in this environment? What factors are you most dependent on?

As we see it in our company, TIAA-CREF [Teachers Insurance and Annuity Association-College Retirement Equities Fund], the next year or so will be a period of moderate to slow growth, but with very low inflation. We see that the US economy is still dealing with some very important headwinds. Obviously, the housing sector is still quite weak. Unemployment is likely to remain stubbornly high. We also see some headwinds still coming from Europe and a lot of market volatility.

On the other hand, businesses have ample capital. We see businesses investing in equipment and software. And consumer spending of late has picked up. So there are some headwinds, there are some things that are supportive, and overall that’s going to make for a picture of relatively slow growth but with very low inflation.

With the mix of volatile circumstances surrounding the business environment this past year, not only economic uncertainty, but natural disasters and political upheavals, has it also been a particularly volatile year for your business?

Actually, TIAA-CREF - which deals with investments and asset management and advising people - has not had a volatile year across the board. Clearly, in the equity markets, because we are always fully invested, our funds have shown the ups and downs of the markets, but nothing particularly unusual, given the volatility of the environment. On the other hand, in many parts of our business, we’ve had a very good year. This year we expect to have record net inflows into our mutual funds and other funds. In TIAA, we ended 2011 with a record amount of capital. So while there’s a great deal of volatility in the marketplace and in the market overall, we see many positive things happening for our company during the course of this year.

Looking forward, what is the one risk to your growth that you are most concerned about, and why? How are you preparing to deal with that?

There are a number of challenges for our growth as we go forward. The biggest risk is the behaviour of individual consumers. Thus far, we have seen that they are continuing, at a somewhat slower pace, to invest. They certainly are continuing to hold their money in solid mutual funds and other very strong investment options. If that were to change, that would be a risk, but I’ve been pleasantly surprised that in 2011 we’ve seen record net inflows, suggesting that at least TIAA-CREF is continuing to hold onto consumer confidence and bringing the assets under management and administration up over 2010.

Do you expect that to continue into 2012?

We believe it’s likely to continue into 2012. We are making investments to deal with a larger pool of assets. We also intend to invest in our advisor pool so that we have more individuals ready to serve clients. We’re continuing to invest in our institutional relationship managers, so that we have more people ready to serve our institutional clients, as well.

How much do the fiscal positions of the US and foreign governments worry you, and has volatility in capital markets and/or exchange rates become an issue for you?

We are fully invested, so we see the ups and downs of the markets on a daily basis. We also are aware that volatility in the global marketplace, and uncertainty around the fiscal situation in the United States and Europe, is feeding into market volatility, so we watch that closely. On the other hand, we take a very long-term perspective at TIAA-CREF. We try not to be too heavily influenced by the ups and downs of politics or the fiscal situation. These elements do influence financial markets, so we have to take them into consideration, but we maintain a long-term perspective. We believe there are opportunities to make wise investments, even against the backdrop of fiscal uncertainty.

In what ways has TIAA-CREF’s strategy changed over the past year, in areas such as business model, markets, pricing, and product/service offerings?

TIAA-CREF was actually developing its 10-year strategy during 2009 and 2010. We’ve built a strategy against the backdrop of the great uncertainties that we’ve seen. Against that backdrop, there are opportunities for us to continue to grow our company and deepen relationships with our clients. Our brand, TIAA-CREF, stands for integrity. It stands for longevity. It certainly stands for thinking about a long-term investment horizon. We believe that many of the elements of our brand will continue to enable us to attract assets and retain those assets. So unlike many other businesses, we built our strategy with an expectation of volatility, and we’re confident that we’ll have opportunities for growth.

Have you had to make any adjustments in that long-term strategy, or do you anticipate making any changes in strategy next year?

I don’t anticipate making any adjustments to our long-term plan. 2011 was the first year of its execution, and we’re off to a good start. I expect 2012 to be a year of continued growth as we continue executing on our long-term plan.

How is your approach to managing enterprise-level risk changing? Are you doing more scenario planning or putting other risk-management processes in place?

TIAA-CREF has a long history of focusing on risk management, which has helped us avoid some of the issues that have hit other financial services companies. Having said that, we are always looking for ways to evolve and modernise what we do with respect to risk management. Indeed, we have started to do more scenario planning, for example. And in addition to market risk and interest rate risk, we are also focused on operational risk and reputational risk.

Is your board becoming more engaged in enterprise risk?

Our board absolutely is becoming more engaged in enterprise risk management. I joined the company in April 2008, and in October 2008 our board created a Finance and Risk Management Committee. That has been a great avenue for me and Steve Gruppo, our Chief Risk Officer, to talk to the board about our risk profile, our risk appetite, and what we’re doing to mitigate various elements of risk.

And how do those risk management processes account for environmental or social costs and benefits?

TIAA-CREF has been a recognised leader – and a trailblaser, even – in thinking about environmental issues, socially responsible investing, and corporate governance. We believe good governance and socially responsible practices can contribute to better financial performance and expose companies to lower risk. This in turn contributes to the strength of the return we seek for our participants and to the strength and stability of the markets. We have been actively involved as a leader in corporate governance for many years. Our position as a universal investor gives us a seat at the table with the world’s companies. Our goal is to influence companies to adopt policies and practices that align with the best interests of shareholders.

We’ve engaged with hundreds of companies on various issues of corporate governance over the years. We’ve also become an important signatory to a number of international protocols around responsible investing – like the United Nations’ Principles for Responsible Investment Initiative. At the end of the day, one of the core elements of the TIAA-CREF brand is socially responsible investing and corporate governance.

In what ways have your response to environmental and social concerns become an element of your cost reduction, corporate reputation, or revenue growth?

There are a number of ways in which our broader interests in socially responsible investing and corporate governance have manifested themselves. We have one of the largest and oldest socially responsible investment options in the world – the CREF Social Choice Account – which reached its 20th anniversary and topped $10 billion in assets in 2010. We have also recently been involved in major investments in the agricultural sector, and we’ve made sure that these investments reflect our commitment to sustainability, transparency, and accountability. A third example is our longstanding leadership role in corporate governance. We believe that many of our participants value being associated with a company that puts a great deal of focus on corporate governance.

In what ways has talent become a strategic issue for you, and are talent challenges different than they used to be? How are you addressing those challenges?

Talent challenges have always been critical in the financial services industry. After all, two of the most important assets for any financial services company are its reputation and its employees. TIAA-CREF has always looked for individuals of high integrity, who support and understand our noble mission and purpose. In line with our strategy, we are investing more in the people who represent us with our clients, both individual participants and institutions. Continuing to build that talent pool is an area of reinforced focus and emphasis.

Are your talent challenges any different in your different markets across the US?

Within the United States, certain regional markets tend to have stronger talent pools than others. For example, we get some great technologists here in the New York area, as well as in our offices in Charlotte and Denver. So we’ve put IT operations in each one of those locations.

Do you shift people around the country based on regional needs?

We will absolutely either shift people, or hire people, in different locations based on our assessment of the strength of the talent pool there.

As you continue to execute your long-term strategy, are you confident that you will have the talent needed to deliver it?

I do, for a couple of reasons. One is that financial services industry is undergoing a great deal of turmoil and change. We’ve discovered that as other financial services companies are downsising or perhaps exiting businesses, that’s been a great opportunity for us to bring on some great talent.

Also, as a mission-driven company with a 93-year history, we have seen that many people working in financial services are drawn to the kind of reputation and stability we have. So we are optimistic that we’ll be able to continue to attract and retain the talent needed to grow our business.

What are some of the particular skills that are vital to hiring at TIAA-CREF?

Several skills are pivotal. One is a focus on delivering excellent client service. The ability to be empathetic and to listen very closely is quite important in this regard. Another important skill set is around technology, since financial services is a technology-oriented activity. Then there are a range of special technical and financial skills-actuarial skills, risk management skills, regulatory skills, and communication skills, both internally and externally.

In what areas do you risk falling short of fulfilling any of those talent needs, and what will it cost if that happens?

There are a couple of places where the competition is heavy and there’s a risk of falling short. One is having people who know how to listen to, work with, and empathise with clients. That’s an extremely important talent, so we are always looking for employees who have that capability. More broadly, there is the need to have risk management capabilities. We have a long history there, but over the last couple of years there’s been a greater demand for employees with these capabilities, as other financial services firms also come to understand the importance of risk management.

Can you think of an example where you found a new or unexpected source of talent?

We have traditionally hired people at mid-career, but over the last few years we’ve also reinvigorated our college campus recruiting.

Does that mean you are collaborating more with educational institutions in different areas, whether it’s curriculum or recruiting, to keep the entry-level pipeline flowing?

We are always collaborating with our clients—who happen to be higher education institutions—and we’ve discovered that helping them understand the technical skills we’re looking for is very important. As I mentioned earlier, we need individuals who have actuarial skills, finance skills, risk management skills, and client-facing skills. So letting the schools know that that’s the pool we’re looking for has been quite valuable.

Consumers have become the driving force behind the development of new products and services. They are self-organising and innovating in new and unexpected ways, making it harder to predict their preferences and choices at any time. Within the framework of financial services, how is open innovation and customer co-creation changing the industry, if at all? And what are some of the strategies you’re adopting to manage that?

As a leading financial services company, we clearly understand the importance of listening to and understanding our clients’ needs, so we’ve done a more granular segmentation of our client base in order to better understand what each segment needs. We’ve thought very deeply about gender differences in financial services and have developed a new initiative targeted to women and their specific needs. Certainly we’ve seen generational differences, particularly around social networking and the use of technology, so there are many ways in which we are listening to clients and adapting our practices to respond to the unique needs of different groups.

Have you put forth any initiatives to address any of those areas?

We’ve put forth a number of initiatives to address those areas. We’ve been thinking very much about under-represented minorities, so we’ve started a Spanish-language initiative that has allowed us to give advice and information about our products and services to individuals who want to hear from us in Spanish as their first language. We have also developed a new initiative targeted to women and their specific needs. We also consider generational differences and the needs of younger individuals versus those who are more mature. For example, we have launched social media programs to reach younger people who tend to be heavier users of that form of communication.

In what ways have the allocation of your time and attention changed, and do you anticipate a return to “normal” at any point, if there is such a thing anymore?

As you said, is there a normal? Over the last several years I’ve spent a great deal of time talking to clients, explaining what we see and what they can expect and reassuring them as best I can about the volatile and uncertain environment. I’ve also made sure that we’re communicating well internally. As we continue to execute on our new long-term strategy against the backdrop of a very volatile market, it’s important that all of our employees understand the path we’re on and why we have chosen that path.

Like any financial services CEO, I’ve also allocated time for the interaction between risk management and the investment side of the house, so I’ve chosen to personally chair our Risk Management Committee. I’ve closely followed the changes in the regulatory environment. Frankly, that is the new normal. We have to run our businesses on a day-to-day basis, but remain focused on client communication, internal communication, risk management, and understanding the changing regulatory environment.