One on One is a weekly feature offering excerpts of interviews conducted by The Evening Sunwith newsworthy business leaders. A.B. "Buzzy" Krongard is chief executive officer and vice chairman of Alex. Brown Inc., an investment banking company based in Baltimore.
Q. As the chief operating officer of Alex. Brown, you were involved in the formulation of the business strategy that resulted in a 252 percent increase in earnings during the first six months of 1991. As the new CEO, do you see any changes in that strategy, and could you briefly describe the strategy?
A.I see no immediate changes in the strategy. As far as what the strategy is, I would expect an overview would best be stated that, in light of the kind of business we're in, our thought is to do very, very well when the opportunity presents itself as the current market is doing and to run the business so that when there is less euphoria in the market place, we are still able to do reasonably well. Rig the ship so that when the wind is behind us we can sail very rapidly, and when we're in the storm, we still don't get capsized. I think that's the secret to success in our business.
Q. Your tenure at Alex. Brown spans the time when it was a privately held company and when it converted to a stock company. How would you characterize the operations under the two different systems?
A. We originally were a partnership, a partnership not only in form but in substance. A very horizontal organization, our general partners were left to pursue and would dedicate resources as they saw fit. We now, as a publicly held corporation, have a more vertical operation. We are much more closely monitored and managed and leave less things to the discretion of individual people.
Q. Has it perhaps also reduced the paternalistic nature of the company?
A. Whenever one enters the public marketplace and has a fiduciary obligation to stockholders, you must reduce the paternalistic elements involved in running businesses.
Q. What does the future hold for smaller regional firms or special niche operations in the face of the competition from national giants?
A. First of all, we see ourselves as a national specialty firm and we compete with the giants and as long as we are able to chose when and where to compete, we are dedicating a hundred percent of our capabilities and resources in those areas. We feel that we will always do well because while we do not attempt to be all things to all people, in those areas upon which we focus we feel that we are the best.
Q. Are initial public offerings and also managing the assets of high net income individuals your specialties?
A. No, initial public offerings just happen to be the result, rather than a cause, of the strategy. Our first strategic objective is to make money for our clients. Our second is a fallout from that, which we have found the best way to do that, to identify growth companies in dynamic industries and become identified and associated with those companies. Bringing them public in their IPO happens to be one ramification of that strategy, but we also grow with them and we don't advocate a strategy of getting into one IPO and out of that and into the next and into the next. What we're saying is, these companies are good companies, buy them, stick with them and you'll do very, very well.
Q. What are the advantages and disadvantages of being in
Baltimore as opposed to being in the financial
hub of the country, which is New York?
A. This a bit of an overstatement, but not a gross overstatement, that if one wants to play at the highest level in the investment banking business, in the big league so to speak, then their choice is Alex. Brown or New York, and a lot of people don't like living in New York, don't want to raise children in New York and therefore Baltimore is the alternative, and Baltimore is an attractive place to live today. That's one of the advantages. One of the disadvantages is, there are a lot of people who think you have to go to New York to get whatever it is they're after getting. We have to compete against what we call the New York syndrome.
Q. Does the possibility of new powers being extended to banks, such as investment underwriting, threaten firms like your own?
A. For all intents and purposes, Glass-Steagall [a law limiting bank operations] is dead, and doesn't know it. It's like the elephant that's been bitten in the foot by the cobra. The message hasn't gotten to its brain yet. Personally, I can't wait for the end of Glass-Steagall. As long as they [government regulators] permit investment banks to compete with commercial banks as well as commercial banks to compete with investment banks, all we ask for is a level playing field.
Q. Alex. Brown is approaching its 200th year in the year 2000, having been formed in 1800. It is perhaps the most venerable of Baltimore businesses among a shrinking number of Baltimore-based businesses. As such, how does the company see its obligation toward the city and how is the city affected by the shrinking number of Baltimore-based businesses?
A. The second part of the question is very easy to answer. I mean, it suffers. It suffers economically, it suffers culturally, it suffers in every way, shape and form. Anytime you're losing good people from the core business, the tax base shrinks, not only the real estate tax, the demand for everything, the ability of other small, small businesses to get started servicing the needs of the people that you're losing. The ripple effect is enormous. It ,, speaks for itself, I'd say. As far as Alex. Brown and Baltimore, we've been here 191 years now. We expect to be here a lot longer. It's unlikely that we will move from here as long as people recognize obligations are a two-edged sword. I mean, if the city and the people of the city are supportive, of Alex. Brown, we intend to continue being supportive of Baltimore. We annually do a questionnaire of the interests of our employees and it just spans the entire range of tax-exempt activities in the area. We think we're a major contributor in every way, including the bringing to Baltimore, every year, many, many professionals who move here to come to work for us. They raise families here and they also become significant contributing members to the common good.
Q. You say that Baltimore is hurt by the decreasing number of Baltimore-based businesses, which also include businesses that are bought out. What can the city do to perhaps draw more businesses to the area or encourage other businesses maybe not to be gobbled up by other businesses?
A. There's probably little they can do to keep businesses from being gobbled up. One thing they can do is to create a climate which fosters gobblers instead of gobbled companies, so that the Baltimore companies become bigger and have greater resources and Baltimore is a beneficiary from that. That all gets to things like the quality of life, the availability of good schooling, real estate taxes, public safety, the cleanliness of the city, the attitude of municipal government, and the state government as well and the county government, greater cooperation among them all, ease of access, an open ear and a willingness to listen to the problems of business.
Q. How is Baltimore doing in all those areas?
A. Baltimore, historically, I think has done reasonably well. Baltimore has had its share of all big metropolitan, eastern city problems. On the other hand, we've had them in moderation compared to other cities. That's one of the selling points about Baltimore. It's a nice place to live. One can always do more, and I think one of the things that can be done at all levels of government is, from time to time it becomes politically attractive when pandering to the voters to be anti-business. And I think that's the perception that one does not want to foster because they're the sorts of things that make people reconsider their location, their obligations, their willingness to commit future resources.
Q. We were talking earlier about being gobbled up. Is Alex Brown in any danger of being taken over at any point and if not, why not?
A. Well, as a publicly owned company, we have a fiduciary obligation to our stockholders to consider anything that would be in the interests of the stockholders. Having said that, we own internally such a large amount of our own stock that would make a hostile takeover very difficult. In addition, our inventory and resources go down the elevator every night. So unless a buyer would get the cooperation of our people, which is our major asset, they really wouldn't be buying anything. So it's very unlikely.