In the span of about four months earlier this year, Milwaukee-based financial services firm Baird made two commitments to downtown Milwaukee that will also raise the company’s profile in the region.
In March, the company signed on to be the naming rights sponsor for the expanded downtown convention center, now known as the Baird Center. The 15-year deal gives a new name to a facility that has gone a decade without a corporate brand attached to it after going through four different names in the 2000s and early 2010s.
Then, in July, Baird extended its lease at the U.S. Bank Center through 2033, while also taking over three additional floors. As the building’s largest tenant, Baird now occupies 21 of 42 floors. While a global firm with 1,600 employees in the city making a long-term commitment is a good sign for commercial real estate downtown, the most visible change will be the addition of Baird signage to the building. U.S. Bank will continue to have signs on the east and west sides of the tower while Baird’s will be on the north and south sides and the parking garage.
BizTimes Milwaukee managing editor Arthur Thomas recently sat down with Baird chairman and chief executive officer Steve Booth at the company’s headquarters to discuss the recent announcements, Baird’s growth and navigating an uncertain economic environment. Their conversation has been edited for length and clarity.
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Baird chairman and chief executive officer, Steve Booth
Credit: Valerie Hill[/caption]
BizTimes: Let’s start with the most recent big news, the decision to extend the lease at the U.S. Bank building. Why now? Why extend through 2033? You make this long-term commitment to downtown Milwaukee in an uncertain office environment, what was the thinking that went into this?
Booth: “Here in Milwaukee it became clear we needed more space. Extending the lease, it’s a little bit of a two-way street, because I don’t know where else we could go to find 21 floors. Look, we know Baird is going to be around, it’s the beauty of being privately held and employee-owned. We’ve had some pretty remarkable growth over the past 10 years around our entire footprint but also here in Milwaukee. This gives us assurance. We’ve got great space, and this really is a phenomenal building. I think this part of town is a really attractive place to be. We’ve had some pretty good luck getting our people back in the office here, because frankly parking, getting here – it’s relatively easy compared to some of our other locations – but fundamentally, we know that we’re going to need to continue to grow here.
“Of our 1,600 people who are in Milwaukee, in this building, about a thousand of them are in our support services group, which we call our CRG group, so they support the whole firm. Milwaukee is just a huge competitive advantage for us in terms of having this be our headquarters city, from the standpoint of those support services. Then, our businesses here are also growing. It’s the private wealth management and our asset management business in particular that needed more space.”
Baird’s financial performance since 2013
Baird has seen both its net revenue and operating income grow significantly over the past decade, culminating in a 46% net revenue increase in 2021. While results were down in 2022, it was still the firm's second best year.
BizTimes: Was part of the decision that it’s a good time if you’re a tenant to say, ‘Hey, we’re ready to commit, we’re ready to be here longer term?’ I’m sure many landlords would like to have that certainty through 2033.
Booth: “We like to define our partnerships as win-win. It’s a win for us in terms of we got solid terms and … office (space) doesn’t cost us as much here. I’m not going to get into specifics, but in terms of having 21 floors, this is a pretty cost-effective place to have it, certainly relative to the space. I think it’s a winner. U.S. Bank as the (landlord), I don’t know what the rest of their portfolio looks like, but having a fully leased building, just given what we all read, it’s a winner for them, too.”
BizTimes: Switching to the other big local Baird news of the year, the naming rights for the Wisconsin Center, the Baird Center. What value did you see in being associated with that facility?
Booth: “Fundamentally, we saw it as just a remarkable opportunity. We didn’t have an appreciation of what the new expansion of the convention center was going to be, and I don’t think many in Milwaukee had an appreciation for what it was going to be. As we learned about it, we were frankly just incredibly impressed with what the new space was going to bring to the table.
“The naming rights, we saw that as just an opportunity to put our name and our brand, which we’re very proud of, on something we think is going to be an extraordinary asset for the community. Without getting into general terms, I think it was a win-win, because for us we were interested in something longer term – it’s a 15-year arrangement – I don’t think many entities around town were probably interested in 15 years. For us, longer was better. And then as opposed to having our name on a sports stadium or something like that, that’s something I really don’t see us doing, but as we thought about it, this is a community asset, it’s going to be bringing people from around the United States and the world to our city, our headquarters city. We operate around the U.S. and around the world, and it just seemed to be a great intersection of interests to have our name on the building.”
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This image shows what the U.S. Bank Center will look like after Baird signs are added to the north and south sides.[/caption]
BizTimes: Between the naming rights and new signage on the U.S. Bank tower, that’s two high-profile or very visible signs of Baird being in Milwaukee. How intentional was that in terms of trying to raise your local presence and maybe make the brand better known in the region?
Booth: “It really wasn’t. If you think about (the U.S. Bank Center), that story was literally 50 years in the making. We moved into this building 50 years ago, we took three floors. We have generally expanded. We have been the largest tenant in the building for quite some time; U.S. Bank, though, owns the building and it was their prerogative to have their name on top of the building. With this lease extension, and just as part of the negotiation, we are literally more than half of the tower now. I mentioned before the win-win partnership, (U.S. Bank) knew our desire to have our name on the top of the building because we’re more than half of the building and, happily, they agreed. We came to this reasonable compromise of we’ll take the north and south and they’ll take the east and west. But that’s 50 years in the making.
“The Wisconsin Center, that was more in the past year and was somewhat opportunistic. It’s going to be neat that these two things are going to come together. We have a lot of people here and our brand is fairly well known, but it wasn’t easy to see the Baird name. It probably should have been easier to see it but there just wasn’t that opportunity. Now we’ll have a fair amount, probably appropriate exposure in our headquarters city that has just been foundational to our growth and our success.”
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Steve Booth
Credit: Valerie Hill[/caption]
BizTimes: So, you’ve got about 1,600 employees in Milwaukee now, a decade ago that was about 1,100. What’s been the key for the firm in terms of growing in Milwaukee verses somewhere else, especially considering we’re not a financial hub in the same way as New York or Chicago?
Booth: “Well, it’s the growth of the overall firm. … The growth of the firm overall has been 72% over the last decade, Milwaukee has been 45%, so the rest of the firm has grown at a faster pace. … We’ve also had the benefit of making some really attractive acquisitions that have fostered a little bit faster growth outside of Milwaukee. Certainly, growing by 500 people here in the last 10 years, that’s pretty good growth for the city. Yes, we are not a financial hub, but we now have over 300 IT professionals here in this building, and we have a phenomenal IT group. And our growth, we need to have a phenomenal IT group and I consider it a huge competitive advantage for the firm. I’m not sure we would have been able to do as well if we were in some other city because I think we have the best IT team in the state.”
BizTimes: We’ve touched on it a few different times, but when you look at, whether it’s net revenue, operating income, book value, dividend, total assets, everything over past decade-plus, it’s growth. What are the keys to that growth? You mentioned the inorganic parts of it, but what’s driving the organic parts?
Booth: “Being privately held and employee-owned, maintaining a crystal-clear focus on the client and what’s best for the client, and then being a great place to work for our associates … that is just differentiated today. That has created an ability to focus in a world where it’s harder to focus. That focus and being able to think for the long term, it has just led to some pretty phenomenal growth.
“Frankly, our growth has exceeded our expectations, but it’s because we started off thinking, ‘What do we need to do for our clients? What do we need to do to remain a great place to work?’ And then interestingly, people want to come to us, clients want to come to us, and some of these acquisitions that I mentioned, although our growth has been well beyond those acquisitions, all those things have come together and created some pretty spectacular growth over the past decade.
“Some of our best growth opportunities have come because growth for us is really people, it’s adding people or it’s adding firms. But in times when there’s difficulty or layoffs – for example, the first six, seven, eight months of the year here have been challenging … but we’ve had some really amazing recruiting opportunities that have taken place in some of our capital markets businesses in particular. Just as, for example, this bank paradigm across the country has played out. We are not a bank, and we do not own a bank, and as a result we’re not burdened by some of the issues that have come with the ‘bankification’ of financial services and the advice business, which has just further differentiated our model and has led to some pretty attractive recruiting opportunities, which will lead to growth. It takes a little time for that to turn into revenue, book value and operating income, but we’re setting the stages today for another leg of growth, two, three, four years down the line.”
Baird’s employee growth
Baird has seen its overall workforce grow from around 2,900 in 2013 to nearly 5,100 at the end of 2022. While growth has been faster outside of its Milwaukee headquarters, in part due to acquisitions, the firm’s growth outside of the city fuels the need for additional support services, which are based in Milwaukee.
BizTimes: You look at this past decade, and it’s been an environment in which we had very low interest rates. Now, the Fed’s been fighting inflation and it’s a totally different paradigm. How does the current environment change the prospects for continued growth? You’re suggesting it has created some opportunity.
Booth: “It has and then the other thing, these changing market conditions, the fact that clients need our help to navigate these extraordinary things that keep happening in the markets, that’s why we’re in business. Again, being privately held and employee-owned just allows us to maintain a clear focus on giving our clients great advice. If everything was continuing to grow and there was nothing that was unpredictable per se, our clients wouldn’t need us as much and the opportunity for us to add value wouldn’t be as great. And then, frankly, just change. Change is our friend and there has been a lot of change over the last five and 10 years across each of our served markets. We’ve tried to be on the forefront of that change. We lead with people and great advice, but technology – people supported by great technology – that’s just been a part of the global economy over the past 10 years, certainly in financial services, and we’ve been able to be on the front end of that with a people-centric approach but with some great technology, which has also helped us.”
BizTimes: Looking back over the past couple years, record revenues for Baird in 2021 at $3.4 billion, the next year comes down a little bit as the M&A market changed and evolved. How do you navigate when things are good and not getting too caught up in that? 2022 was your second-best year ever, which looks great, but the problem now is we’re comparing your results to your best year. How do you navigate that psychologically as a company?
Booth: “This is our philosophy in how we built the company and, keep in mind, we’ve been building it for 103 years. We have purposely built a pretty balanced business model so we’re not beholden just to one end market, because we know each of our end markets is cyclical, and they are unpredictable in terms of when they will cycle. Just look at the past three months here in terms of the market rebound, it’s unpredictable and so we have purposely built a balanced business model around five businesses (private wealth management, asset management, fixed income capital markets, equity capital markets, principal investments) that serve differing end markets that are on different cycles. Then, as part of our business model, we’ve also tried to have a balance of recuring revenue or fee-based revenue versus transactional revenue, which also helps balance this. So, the answer to your question is, it’s the balanced business model that lets us know.
“We were profitable each and every month in ‘08 and ‘09 and that was the ultimate litmus test for this business model that we had literally been building for years. It has only gotten better from then, so we know it’s going to work. Some businesses may cycle down, some will cycle up. Two years ago, though, was one of those rare years where literally everything, everything was up. We’ll take ‘em when we can get ‘em, but we know it probably wasn’t going to last; 2007 was the last time I’d seen that. And frankly, last year and this year are better than we probably would have expected given that two years ago we literally grew by a billion dollars in one year and now we’re pretty close to that.
“What I love about the five businesses is they’re all really durable businesses; our growth has been really durable, and it continues to be. That’s what gives us the confidence to continue to invest. Each year, our brand gets a little better known in our industry, and it helps us attract new clients. It’s also easier to attract people today, just frankly as there’s more awareness around what we call the Baird difference.”
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Steve Booth
Credit: Valerie Hill[/caption]
BizTimes: As you look into the future, what are the greatest opportunities for continued growth and greatest challenges?
Booth: “Each of our businesses, the growth opportunity has never been better, ironically because of what I said earlier. We’re a mid-sized player and the benefit of being a mid-sized player is there’s a lot of market share that’s available. That said, these markets continue to change and evolve and so we’re going to need to continue to change and evolve.
“My biggest concern is complacency. Complacency is the enemy and change is our friend, as I like to remind everybody. But change is hard, it’s never ending. ... COVID was hard. This market setback last year, it was hard. M&A right now, which is our second biggest revenue stream, is tough. We’re having to work super hard to get an M&A transaction done, but if it were easy, anyone could do it.”
BizTimes: We talked a lot about technology and obviously the past nine months or more have been dominated by discussion around AI and how that’s going to change everything under the sun. How do you see that shaping your business going forward? Is it a threat, a risk, an opportunity, all of the above?
Booth: “It’s an opportunity for us. It’s an opportunity for most of American business. There are the AI creators, but it’s going to be the application of AI throughout the U.S. economy, just as software has been so incredibly revolutionary to productivity in the United States and the world, AI applies to even the creation of better software and code, all the way through making more efficient relatively mundane tasks.
“We’re a self-clearing firm from an operations standpoint, it’s another big aspect of what we do here in Milwaukee but some of the early applications of AI – robotic process automation – we have used in our back office in clearing operations, and frankly it’s been a game changer for us in terms of better, cheaper, faster, without having to have people to do that, which would have been the paradigm 10 years ago. That will continue, certainly in our back office operations, but each of our businesses, we’ve had some discussions on it, they’ll be able to apply AI technology, and frankly there will be people out there who are in the business of coming up with technology that we can apply to our businesses. That’s why we need this great IT team that’s embedded in each of our businesses to quickly and efficiently put it into each of our businesses – that truly will help our clients or help our people be more efficient.”
BizTimes: In terms of managing, people are a differentiator for you, and you have a technology that can make their lives easier but also can be seen as a risk, as a threat to a job. Applying it in a balanced way so people don’t see it as AI wiping out all these jobs but see it more as a tool that can benefit their work, is that a tricky balance to navigate?
Booth: “Again, we’re a people-centric business and people are our biggest asset. The real underlying asset behind those people is the trust that our clients have in our people and Baird and then frankly that our people have in the firm. So that’s at the epicenter of each of our businesses. We’ve already been taking technology, and its different in each of the businesses, and they’re taking it in places where they can, again, help our people deliver a better overall value proposition. Maybe there will be some elements of our business where AI replaces us, but when you’re talking about what we do, what’s probably an opportunity for disintermediation has already been disintermediated. We’re in some pretty attractive market segments where you’re going to need people. Frankly, our people can be better by leveraging AI to come up with a better solution set for the client.”
BizTimes: Having that employee-ownership element to the firm, how does that change your approach to growth, decisions about investments, whether that’s naming rights or extending a lease? How does that help shape the overall direction of the firm?
Booth: “The other piece of that is being private. Being privately held, frankly not being public and not having the distractions of a public company, a lot of people who join us are coming from public companies that have to be so short-term focused, and maybe that creates a conflict for some longer-term client goals. A lot of the businesses that we compete in, we compete against bank-owned models – and again, we’re not a bank – so they’re coming at it from a bank-lending product standpoint whereas we’re coming at it from an advice standpoint. We’re a pretty attractive place, and we’re a pretty unique place, and then also we’re a pretty stable place. You haven’t been taken over, and you’re on your third iteration like some of our competitors who sold 10 years ago. These clients are just like ‘enough’, that’s a significant differentiator in and of itself and then being able to own a piece of the firm, which we just think is fair.
“We’re really proud this year of our 5,100 employees; we just crossed over 80% of our associates are shareholders, which is remarkable. We’re a C-corporation, by the way, so we have shareholders. Our top 20 executives, our executive committee, owns less than 10% of the company. It is super widely spread. It’s fairly spread. When you join, you get your fair share of the firm and you get to add as you’re here and when you retire or leave, you have to sell back. That’s also unique. We have a pretty unique value proposition in terms of being able to have a great career here, one where there’s going to be minimal distractions, you can stay focused, and then you also get to share in the success of the firm while you’re here. It’s pretty differentiated and hopefully will continue to be so. I’m fairly confident it will.”
