Our Ten Best Thoughts On What’s Next – Looking Forward, Always

Dear Clients and Employee-Partners,

A little over a year ago, we all started dealing with the reality of the global COVID-19 pandemic.  Almost everything we thought we knew, assumed or depended upon as a construct for living our lives or running our businesses was abruptly called into question and challenged.  During the course of this past year, the two of us have tried our best to transparently over-communicate our best thoughts on every aspect of the new world order, including the personal safety and physical/mental health of our colleagues, clients, friends and family; strategies and implications for economic survival and recovery; liquidity management and capital structure imperatives; business operating priorities; diversity, equity and inclusion; playing offense in a defensive moment; work from home challenges and strategies; and every other real world topic we faced during these incredibly complicated and challenging times.  We did our best to communicate not only with our 4,000 Jefferies global employee-partners, but also with each of you, our client partners.  We were not always right, but our thoughts were sincere, well-intentioned, experience-based and rooted in as much common sense as we were able to muster.  With all of this in mind, we find ourselves today at yet another major inflection point, as we see the world starting to change again, fortunately for the better, bringing with this change a whole new set of challenges and opportunities.   

As we enter the second year of the pandemic, we would like to offer our clients and our employee-partners our thoughts on what we see ahead and how we plan on best positioning Jefferies for the benefit of all our important constituencies.  Our hope is that these thoughts inspire each of you to make your own list and perhaps take a few of our thoughts and modify them to best serve your business and team as 2021 progresses:

1. COVID-19 Reality.  For a variety of reasons, we remain optimistic about the future of the world economy, the capital markets and life in general, but there are real challenges ahead. We are not healthcare experts, so please accept that these are simply our opinions and current perspectives, but they have been crafted based on in-depth conversations and direct work with great specialists with direct knowledge. We believe the U.S. population likely will be about 60% vaccinated by the end of this year, limited by hesitancy of many to be vaccinated and the fact that children likely won’t begin to receive vaccines in mass until the end of this year and into 2022.  Unfortunately, 60% is not likely to represent herd immunity.  Europe’s vaccination level may be lower, perhaps around 50%.  The total world may only be 10-15% fully vaccinated by the end of 2021 because 90%+ of doses are in G7 countries.  Extrapolating out (ex G7 and China), we may be fortunate to achieve 15-20% vaccination rates globally in 2022.  This means the light switch of immunity will not be easily “turned on” around the world and it will be more of a safer, slow dimmer switch that is getting brighter every day.   Educating people on the merits of vaccines, investing in infrastructure for the supply chains and learning how to proceed best in the developing world will all be challenges and opportunities.  Additionally, G7 countries probably will have major booster shot programs in 6-12 months and possibly every year thereafter. The point we are making is that we must be cautious and realistic as we plan for the future.  There will be a path, but to ignore the complexity will be a mistake.   One big question is how long before the COVID virus has mutated to an extent that our current vaccines do not work because they attack the same spike protein that will no longer be a successful point of attack.  18-24 months is the best science expert opinions for this “escape” and the more people that remain unvaccinated the faster it will likely happen.  Entirely new vaccines will need to be developed, manufactured, distributed and injected globally for a novel non-spike variant.  This sounds scary, but we believe it will be manageable.  We now have the proven technology to detect, gene sequence, develop and manufacture high volumes of effective vaccines at amazingly fast speeds that regulators will approve.  Not just mRNA, but other pre-approved vaccine delivery platforms as well. Human ingenuity has been unleashed and research, innovation, logistics and a broad global response will have incredibly positive ramifications for dealing with COVID and many other health issues that are inevitable.  Additionally, we believe governments also understand the mistakes that were made to date and are determined to close the gaps and be ready for a very different future in biodefense.    
2. Return to Office.  The “office” or more properly the “facility away from home that we occupy together” has an important place in our future.  However, deadlines to return seem premature and arms do not need to be twisted, as almost everyone is eager to return. Mandating rules accomplishes little more than adding to people’s already high anxiety about the risks and process of re-entry.  People will trickle back into the office when they feel safe and comfortable, and when enough folks make this decision, this in turn will create natural momentum.  Our best guess based on all available data is that this will happen in earnest in September, coincident with what is likely to be a widespread return to school from pre-K to PhDs, but we are prepared to adjust this expectation in real time (sooner or later) and transparently share our thoughts with our 4,000 employee-partners as life unfolds.
3. The Future of Work.  WFH is here to stay.  Rather than one set of rules for all of us, the operative word will be “flexibility.”  It may be three days in the office and two remote, one and four, two per month, five either way, or any other combination depending on the person, team, role and circumstances.  Flexibility will increase efficiency, productivity and happiness.  The common office will be the place we gather to share ideas, maintain true connection and enhance our learning and growth.  The future of work will be a positive for diversity and living choices, and Jefferies as a firm plans to embrace our newfound ability to accomplish great things flexibly and remotely, while still maintaining the culture and glue that has made Jefferies a special partnership.  In this connection, we have been re-configuring our office space with a ton of input from our team members.  There will be more common areas, fewer offices, and an increased amount of shared and flexible workspace, all designed to allow for a more hybrid and flexible approach to work and working together.  We will start out with a plan that reflects our people’s desires and then be prepared to pivot and adjust as time passes and we all get a better sense of what is best for individuals, our culture and our firm. Similarly, our investment will continue to increase for technology and tools that: allow increased flexibility of our workforce, optimize our connections with clients, enable us to spend more quality physical time with all humans, fully automate all our processing needs, enhance our risk and compliance systems and leverage our data trove to add value and drive better decisions.
4. Travel.  Zoom and its ilk have been our lifeblood and we cannot imagine where we would be without this capability.  That said, we are all exhausted and tired of and from it, through no fault of the amazing technology.  Video connections will have a very big role in our work lives going forward, as we now know that many things (roadshows, pitches, conference meetings and the like) can be done efficiently and effectively via virtual presence.  That will continue going forward, and this will continue to make our lives more efficient and easier.  Establishing human relationships, bonding and building trust generally cannot be accomplished by phone or video.  When safe, the world will return to lunches, dinners, meaningful travel, live conferences and in-person entertainment.  In respect of travel, governments, working together, will have to develop a globally trusted program to verify vaccination for international travel in the next 12 months.  Business is done by people and people choose who to do business with based upon whom they like and trust. Remote connectivity will expedite the processing of more mundane parts of our work lives and that is great, but we expect our people to all be interacting meaningfully in person with each other and our clients.  The two of us cannot wait!  
5. Our Future Leaders.  Perhaps no group of people have been more disadvantaged by this past year’s experience than the Gen Z cohort of our workforce.  At Jefferies, well over 25% of our people are in this category.  The inability to be “in the room where it happens” and to learn the “nuances” and “Je ne sais quois” of what we do as a firm can be incredibly frustrating and de-motivating.  When you throw on top of this the greatly increased work flow and the reduced opportunity for outside fun, downtime or ability to leave your home, there is no doubt we have a lot to do to help this group re-establish their career trajectories, not to mention their lives.  It is up to us as individuals and as a firm to embrace fully our future leaders and help them make up for lost time when it is safe to do so.  We need to re-earn their trust, confidence and commitment because our firm, like all other enterprises, cannot exist and prosper without them. 
6. Culture Rules.  While we have been able to accomplish amazing things during this horrible pandemic, the challenges for our culture have been real.  We know that our connective tissue has been stressed despite our believing that we have done just about everything humanly possible to minimize the damage.  We have a lot of work to do over time to restore our ability to seamlessly plan, strategize, execute and optimize all we do.  This is the only way our firm’s collective whole will remain greater than the individual sum of all our hard working and dedicated partners.  This is a big reason why, despite the WFH option, we will also spend a substantial amount of time in our offices working together to re-establish our connections and remind each of us why we are so passionate about each other, our clients and our firm. 
7. The Economy and Capital Markets – The “Roaring 2020’s”?!   We are optimistic about the economy and the capital markets.  Large amounts of stimulus, relatively low interest rates (which likely will slowly creep up, hopefully with central banks awake and mindful of the need for moderation), decent corporate earnings and moving on from the worst of the pandemic, all lead to an incredibly positive backdrop of increased activity in almost every aspect of life.  People have had an incredible reminder of mortality and the desire for human physical connection may never have been stronger.  This will be an exciting period to be alive and this hopefully should be an unneeded but extra benefit for people to get vaccinated immediately when it is their turn.  As we move forward, as always, there will be winners and losers which creates consolidation opportunities.  M&A activity will remain high, as scale and operating leverage remain dominant themes in many industries, and strong stock prices and abundant private capital will encourage and enable the process.  The capital markets generally will be supportive of good businesses seeking to grow or transform.  SPACs are neither a panacea nor the devil’s work, but a helpful tool in capital formation, particularly to the extent the process and timetable for regular way IPO’s doesn’t improve.  SPACs can be smart and useful structures to access the public markets more rapidly and readily, so long as everyone operates within the bounds of fairness and honest transparency (aggressive, unrealistic and indefensible projections will lock folks out of this market and lead to liability). Additionally, as is the case after every period of low interest rates and strong market performance, excess leverage in opaque areas can seep into the system.  It is up to market participants to ask the tough questions internally and then do real work to re-assess reality to protect their institutions and the market.  If this doesn’t occur, regulators and rating agencies step in to incent proper behavior in their own way.  Finally, if business leaders and investors ever questioned whether capital structure was critical, the pandemic has answered that question forever.  Everyone gets into problems, but those with enough time to survive the problems always seem to be the “lucky” ones.  This will not end with the passing of the pandemic.    
8. ESG Is a Way of Life.  If there are any individuals or businesses who continue to believe this is window dressing or checking a box, it may already be too late for them.  
9. Today’s Workforce.  Prioritizing diversity, equity and inclusion initiatives and combining them with the added flexibility afforded by a hybrid work environment means the pool of human capital is finally being correctly understood as broader and deeper than ever assumed.  This is fantastic news and shame on most of us for not realizing this sooner.  It is all of our jobs to not only seek out this talented pool of people, but to also make sure our firm adjusts and adapts and embraces their needs and priorities so we can offer meaningful careers to all.
10. Kindness.  People are starved for real human interaction.  We now know what it is like to live without it.  We not only have a newfound appreciation of our family, friends and co-workers, but also for all of the people who have worked so hard to help us through this dark period: healthcare workers, first responders, food service workers, retail staff, teachers, drivers and the list goes on and on.  We are looking forward to being able to show our appreciation in person as the world becomes safer.  Mean spirited and rude people will not be welcome.

This list of thoughts represents how we best see the near future and our plan to best tackle the opportunities and challenges.  Mike Tyson famously said: “Everyone has a plan until they get punched in the mouth.”   This past year has been a mouthful of punches.  We expect the next year will be massively better, but nothing is guaranteed and all we can do is learn from our past experience, be honest about all the current data points we can get from the most reliable sources, and stay in close touch with our family, friends, co-workers and clients so that we can learn from each other, support each other, and best navigate whatever comes our individual and collective way.  We are grateful for our connections to each of you and look forward to the most positive future possible, together.  

Rolling with the punches and eager to play offense while looking forward, always,

Rich and Brian