Looking back over Carter McClelland’s wide-ranging career, it’s clear he had Forrest Gump’s uncanny knack for turning up at pivotal moments in business history.
McClelland, BS ’67, MBA ’73, was among the first 300 employees at Morgan Stanley in the mid-1970s, where he later was part of the finance team for the Trans-Alaska Pipeline. And because of his engineering background, Morgan Stanley chose him to help found the firm’s technology practice.
“They looked around the room for a Californian with an engineering degree,” recalls the Glendale native, now 73, whose undergraduate degree is in aeronautical engineering. “They only had one.”
Flash forward to April 1 of this year, when McClelland received the Stanford GSB 2019 Excellence in Leadership Award in New York City. The annual alumni award recognizes the importance of leadership in business by highlighting the achievements of a senior executive who has made significant contributions to the corporate world and the community.
McClelland was singled out not only for his professional accomplishments with Morgan Stanley and Deutsche Bank, as chairman of Bank of America Securities, and as cofounder and chairman of independent Union Square Advisors, but also for his extensive work with Stanford since his graduation. He was co-chair of his 50th undergraduate reunion as well as a co-chair of his 45th Stanford GSB reunion. He was a member of the Stanford GSB Advisory Council, and for 33 consecutive years taught Business 321 with Jack McDonald. He’s also a board member of Stanford Center on Philanthropy and Civil Society (PACS), which works to improve philanthropy, strengthen civil society, and effect social change.
With offices in San Francisco and New York, his Union Square Advisors has become a leading technology-focused investment bank that offers strategic advice and executes mergers and acquisitions.
So you went from a BS in aeronautical engineering in 1967, then designed computers for the unmanned space program at the Jet Propulsion Laboratory, then returned to get your MBA in 1973. You ended up as an investment banker. Please connect those dots for us.
I graduated from Stanford in 1967 and spent my first year as assistant director of Stanford in Britain — $225 a month and room and board, a one-year job. I met my wife [Stanford alum Stephanie Palmer McClelland, BS ’70, MS ’72, a 14-time Tony award-winning Broadway theater producer] there. I was basically the resident assistant, charged with keeping the students under control. Then I went to work for three years at JPL, where I’d worked most summers when I was an undergrad, then returned to business school in the fall of 1971.
What did you want out of business school?
The thought of working on Wall Street did not enter my mind until the fall of my second year at Stanford GSB. I enrolled in two classes that changed everything. The first was taught by Jim VanHorne, called Money and Capital Markets. In that class were 50 or 60 people, a good 20 of whom had come to Stanford solely to get a job on Wall Street, which I knew nothing about. But I was fascinated by finance. It became my passion while I was there. And during the same quarter, I took Jack McDonald’s investments course. That set the hook.
Thus began your career as an investment banker.
Three investment banks showed up to interview on campus that year: Morgan Stanley, Goldman Sachs, and Dean Witter. I was lucky enough to get offers from two of them, and took the Morgan Stanley job. Back then they had 300 people worldwide — it was a baby company. It was really a fun time to enter a small partnership and to be there when the annual compound growth rate of people was 35% a year. When I left 22 years later, there were 11,000 people.
Did you specialize in tech?
The tech career kind of evolved. I got there in 1973 as one of 11 MBAs they hired, two of them my classmates from Stanford. Eventually, because I was an engineering undergrad, they put me in charge of leveraged leasing and project finance. So for about three years I was one of the guys working on the Trans-Alaska Pipeline financing when that was being built. And then when Apple went public in 1980, Morgan Stanley had no clue what a personal computer was, so I became part of the team that took Apple public.
There probably weren’t a lot of tech financing specialists back then.
After the Apple IPO, they looked around and thought maybe Morgan Stanley should have a group focused on technology. So I moved back to the Bay Area in 1983 — our boys were one and four — and spent three years out there to get that group up and running. In 1986, I came back to New York and left that group in the hands of a fellow Stanford MBA you may have heard of — Frank Quattrone [who helped bring dozens of technology companies public during the 1990s tech boom, including Netscape, Cisco, and Amazon]. He was my first-year associate when I showed up out there. I’d previously hired him out of Penn as an analyst.
You also had a ringside seat to other earthshaking business moments. When you were at BofA, you decided to stop underwriting loans for Enron in 1999, two years before that company collapsed.
I wouldn’t take too much personal credit for that, although it was on my watch. When I was hired by BofA, my performance was measured using two metrics. One was the ability to grow investment-banking revenues, and the other was to improve the return on balance sheet. We just had to be more disciplined, making sure return on the balance sheet drove other ancillary revenues and fees. Enron fell into that maw, if you will. The only Enron loans we had outstanding when it collapsed were project finance loans that we couldn’t get out of because they were long-dated. We did that in a number of cases. Enron just happened to be one that blew up and made us look smart. I have the BofA credit department to thank for pushing us to that result.
The tech focus at Union Square is pretty narrow. Are there specific rewards to that?
We looked at where people pay fees for technology mergers and acquisitions. For instance, 75% of the wallet for tech M&A in the United States is in three verticals. Software is probably half of the entire tech mergers and acquisitions market, internet and digital media is second, and IT infrastructure is third. So we just picked the areas we thought would cover a lot of the fee pool. I guess the reward we’re going after is to maximize the impact we can find in getting involved in M&A transactions. So we went after the sweet spot in the market.
What was the broader business model for Union Square?
The idea was to find bankers who really understood technology. Every firm has some of them, but we wanted to be known as the smartest people in the room to help CEOs and boards assess the landscape and make smart decisions about what to do with their company. The payoff for us is that more than 80% of our mandates are noncompetitive, meaning that companies call us up and hire us because they’ve known us a couple of years before they hire an advisor, and they feel comfortable selecting Union Square.
You’ve retained entrepreneurism as one of the cornerstones at Union Square. Why is it important to keep that spirit alive there?
Most companies we work with are founded and still run by entrepreneurs. The point we make is: “We live in your shoes. We know what it’s like to start a company. We know the stresses and strains of building something from scratch. We know the pressures to meet payroll and make revenue every quarter. So we get it.” It makes us scrappier and better service agents if we’re focused on doing the best possible job, because things don’t get teed up for you like when you’ve got a business card that says Morgan Stanley. We’ve gotta earn our supper every day of the week.
You’ve chosen to remain deeply involved with Stanford alumni organizations. Why?
I simply wouldn’t be where I am today if I hadn’t attended Stanford. I really feel a debt of gratitude to the place. I also love being surrounded by smart people. That was the appeal of Morgan Stanley when I went to work there, and that’s the way Stanford is. And finally, Stanford has such an important role to play in a world where one of the biggest issues is workforce displacement through technology. Stanford sits at the epicenter of all that and is an important part of the solution. Forty percent of the undergrads coming out of Stanford graduate in computer science, a stunningly high number. They’re modifying their curriculum to make sure people going down that path don’t just become coders for the next food-delivery app, that they really understand the broader context in which they work. I hope in some small way I can help Stanford continue to have a major impact on the world.
You’ve been on the board of the Stanford PACS since 2017. How did that come about?
That sprang from my involvement with Echoing Green [a New York-based nonprofit], which was cofounded by Steve Denning, MBA ’78, a good friend of mine. It’s the gold standard for seed capital for social entrepreneurs. As I listened to their business model, it captured my heart — find great people with great ideas and solve a big problem. They were doing something jointly with Stanford PACS in New York, so I became acquainted with them there. Subsequently, my wife Stephanie and I were on the host committee for their biennial philanthropy summit. Both Stanford PACS and Echoing Green are big philanthropic commitments of time and energy, but I accepted and have had a lot of fun. The work they’re both doing is quite important.
What did you learn by teaching Business 321 with Jack McDonald for 33 years?
Jack and I had written a case about one of my clients at Morgan Stanley, and the students would read the case carefully and ask questions — some of them had really smart questions around finance, some of them had really smart questions about technology, and probably a third of the class would have no idea what we were talking about and would ask questions that were ill-informed. It taught me to be nimble and sensitive. Jack never raised his voice to a student or put them down. He taught me a lot about how to be humble but informative, to treat each question equally, and to not let anybody in the classroom lord it over the others. He taught me how to interact well with students, and that translates into people at large.