By Ryan Underwood, BA’96
When Adena Friedman, MBA’93, took over as CEO of Nasdaq at the start of 2017, making her the first woman to lead a global exchange company, she became the subject of numerous profiles in the financial press. Although each piece explored different aspects of her management style and future plans for Nasdaq, one detail always garnered prominent mention: Friedman holds a black belt in taekwondo.
For business-inclined readers who can never get enough Confucian-hued pearls of strategic wisdom, the metaphors practically wrote themselves. A typical passage went something like this one from Bloomberg: “The history books will … show that Friedman, a black belt in taekwondo, was the one who finally kicked through the thick glass ceiling that hung over Wall Street since its days under a buttonwood tree in the 1700s.”
But ask Friedman, who graduated with a master’s in business administration in 1993 from Vanderbilt’s Owen Graduate School of Management, what lessons she carries from the taekwondo studio (where she still trains with her family) to the executive suite, and her answer might surprise you.
It’s not the coordination, discipline and sparring tactics that stand out so much as her instructor’s message to kids who are just beginning to take lessons. “He basically tells them, ‘It’s up to you as to whether you work hard or not. You’re going to make the most of this, or you’re not going to make anything of it. It’s your choice,’” she says.
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“At the end of the day, you make the most of your situation. It’s only up to you.”
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“I personally think that’s the best lesson you can take in life. At the end of the day, you make the most of your situation. It’s only up to you. No one else is there to do you a favor.”
More than representing some new epiphany gleaned from Friedman’s nine years of martial arts training, that message of making the most of a situation serves as a kind of affirmation for how she’s lived her whole adult life, stretching back at least to high school. It also helps explain how Friedman rose from an intern at Nasdaq after her graduation from Vanderbilt to become CEO of one of the world’s most visible financial services companies. Her 25-year career there—punctuated by a three-year detour as chief financial officer at the private equity and investment firm The Carlyle Group—is a testament to Friedman’s remarkable ability to convert seemingly ordinary conditions into remarkable results.
Now as CEO, she has laid out a bold vision to build upon Nasdaq’s foundational legacy as a leading provider of the technology that powers financial markets. It’s an ambitious goal that could transform Nasdaq—and exchanges around the world—for years to come.
It’s also something that those who know Friedman say she is uniquely suited to accomplish.
EMPOWERED UPBRINGING
There are two things to note about Friedman’s childhood in Baltimore. The first is that she loved going with her father to his office at the global investment and advisory firm T. Rowe Price, where he worked as a managing director. Whenever she had a day off from school, she’d hang around the trading room, helping office assistants, marveling at the sea of 1980s-era personal computers and reveling in the chance to interact with international visitors in the office.
“When someone would come to town, rather than have them stay at a hotel, they would actually stay with us,” she recalls. “It was very much an environment where colleagues were friends and everyone felt like they’re part of the family. It was really fun.”
Making it all the more alluring, her mother enrolled in law school when Friedman was 9. So, when the choice came down to mingling with a jet-setting crew of stockbrokers on a bustling trading floor versus sitting quietly through a sandpaper-dry legal seminar, it was a no-brainer for Friedman. “I’ve always been intrigued by finance,” she says. “It’s not like I understood the markets or anything like that back then. It was just generally understanding the concept of investments and savings and buying equity. … I found it very interesting.”
The other thing to know about Friedman’s upbringing is that she attended an all-girls school from the time she was 8 years old until graduating from high school. She exceled academically, fondly recalling nights spent doing math homework. “I honestly enjoyed it,” Friedman proudly admits.
She also felt encouraged to explore the various avenues her curiosity would take her, asking as many questions as she could think of along the way. “Being curious and feeling like you can take on anything—and you’re only surrounded by other girls—it’s a very empowering type of environment to go to school in,” she says. “I definitely found it to be an important aspect of my childhood.”
By the time Friedman arrived at Williams College in the fall of 1987, she’d developed a confident voice all her own that she was eager to use in classroom discussions. Gravitating toward foreign languages and international politics (she’d practically overdosed on Model U.N. in high school), Friedman spent a month in Russia just as Boris Yeltsin became president. “The entire country was in a state of chaos,” she says. “It was a fascinating time to be in political science, no doubt about it.”
At Williams she also met her future husband, Michael Friedman, JD’93. They began dating when Adena was a freshman and Michael was a senior. Once he started law school at Vanderbilt, she began thinking about a career in Washington politics and spent the summer before her senior year working at the Nashville field office of then-Sen. Al Gore Jr., ’73, ’77.
But that experience quickly changed her perspective.
“I think I realized a few things,” she says. “I asked, what’s the first job you get out of college when you come and work on the Hill? It’s basically that you become a database entry person, at least back then. You’d take all those postcards and letters people would write and just enter them into databases all day long.
“That didn’t sound particularly compelling and, literally at the time, the pay was $15,000 a year. You couldn’t earn a living. That was a little bit shocking. The second thing was that I realized government wasn’t quite as idealistic as I thought it was.”
Facing graduation and the prospect of her fiancé spending two more years in law school at Vanderbilt, Friedman turned once again to the world of business, hoping to parlay her interest in global affairs into a slightly more lucrative direction. “That’s when I decided to go to business school,” Friedman says. “I applied only to Vanderbilt because my now-husband was there. And I was really lucky to get in because otherwise I wasn’t quite sure what I’d do after I graduated.”
Although Friedman had stellar credentials, it was—and still is—unusual for any top-ranked business school to offer admission to a candidate who hadn’t spent at least a few years working after college. But she applied to the MBA program at a time when Vanderbilt actively had begun to recruit more women as well as students from beyond the South.
From the beginning, Friedman stood out to her business-school peers and professors. Maria Pugeda Connor, MBA’92, recalls meeting Friedman while working on a project for one of their marketing classes. The two soon discovered they both lived in the same apartment building (20th and Grand) and have been friends ever since.
“She’s like a gentle giant. She has an enormous ability to get things done and be successful,” says Connor, now an executive with Cox Automotive in Atlanta. “But unlike some others in business school, she didn’t have to put herself above others to make it to the top.”
Bill Christie, the Frances Hampton Currey Professor of Finance at Vanderbilt, recalls Friedman as someone who made a lasting impression. “I remember her being exactly the kind of person she is now, which is intense, but in a really good way,” Christie says. “She always knew what she was talking about. She was very articulate and just a joy to be around.”
(Perhaps ironically, it was around this time that Christie was working on his most famous study, which found indications that Nasdaq brokers colluded with each other to maintain artificially high profits at the expense of investors. The work led to more than $1 billion worth of settlements in the late 1990s and was no small source of embarrassment for Friedman, who was an up-and-comer at Nasdaq at the time. Nevertheless, the two have remained friends since Friedman’s time at Owen.)
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“I look at being a product manager like being the CEO of your own little company within a larger company.”
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While Friedman took her share of finance classes, she found herself increasingly drawn to marketing, specifically product management. She says the “four P’s” of marketing (pricing, promotion, placement and product) offered her a window through which she could better understand the inner workings of a business. “I just found it so fascinating,” Friedman says. “At the end of the day, I look at being a product manager like being the CEO of your own little company within a larger company.”
Most people who become product managers, however, oversee sales of consumer products like cereal or dish soap. That held no interest for Friedman. Instead, she took a cue from her father’s career and started thinking about how to apply the skills she’d learned as a product manager to the financial services industry.
“I started talking to my dad about it, and that’s when I got the idea that Nasdaq is a little bit more like a product company,” Friedman says. “The product is the market. Is there a way for me to get involved there?”
THE RISE OF NASDAQ
Most people think of Nasdaq primarily as a stock market, similar to the New York Stock Exchange—a venue where publicly traded shares of companies are bought and sold. While that’s true, the company known today as Nasdaq evolved from a much more complicated history than most other exchanges.
For centuries U.S. stock exchanges ran exactly as they have long been depicted in popular culture: Traders would gather in a physical location, often shouting buy-and-sell orders to one another as they traded shares of stocks listed on that particular exchange. But gaining access to an established exchange required brokers to pay high fees to join. They would then make money by pocketing the difference between the price at which they would sell a stock to an investor (higher) versus the price they would buy it from them (lower).
In the run up to the Great Depression, there were also thousands of independent securities dealers across the U.S. who fell outside the exchange system and were trading shares of lesser known, unlisted companies, often at vastly different prices. Unlike with the exchanges, investors had no easy way to determine the going buy-and-sell prices for these “over-the-counter,” or OTC, stocks.
The setup resembled that of an international airport terminal, where multiple currency brokers post the prices at which travelers can convert their money into the local currency, or sell back the cash they no longer need. Because the brokers are all close together physically, like in an exchange, currency prices (and the buy-and-sell spreads) are pretty similar, though typically not a great bargain because of the convenience of being located at the airport. Once you get out into the streets of a foreign city, however, the exchange shops are spread much further apart and you’re more likely to find a wider range of deals—some better than offered by the airport kiosks, some worse.
In the wake of the Great Depression, Congress passed reforms designed to protect investors and in 1934 established the Securities and Exchange Commission. Large, well-established exchanges had their own incentives to maintain fairness and order within their ranks. The more pressing issue became how a scarcely resourced agency like the SEC could enforce rules among an unwieldy group of independent brokers. The answer came in 1939, with the establishment of an industry-run regulatory organization called the National Association of Securities Dealers (NASD).
In addition to creating a uniform set of operating standards for its members, the NASD also helped push for greater price transparency for the shares traded in its broker network. The group began gathering daily price quotes of thousands of securities from its members. Newspapers eventually started publishing lists of OTC stock prices alongside the tables for the major exchanges. The share-price listings were color-coded according to geography: pink sheets for companies based in the East, green for the Midwest, and white for the Pacific Coast.
By the late 1960s it became clear that mainframe computer technology offered a better way for this network of securities dealers to share pricing information. After years of discussion the NASD launched an automated quote system, “NASDAQ,” in 1971. The resulting platform, powered by a UNIVAC 1108 mainframe housed in Trumbull, Connecticut, worked more like an early version of the internet than anything resembling a traditional stock exchange.
Gordon Macklin, the first president and CEO of the Nasdaq—which was then a for-profit entity owned by the quasi-regulatory, nonprofit NASD organization—said that by centralizing quote information, many more brokers would be able to compete in the system. It was a bit like when eBay came along and buyers and sellers from across the country (or world) suddenly had an easy way to find and conduct business with each other.
“What we did with the Nasdaq was to create a trading floor that was 3,000 miles long and 2,000 miles wide,” Macklin explained at the time. “The whole capital-raising process throughout the country has been geometrically improved by the Nasdaq.”
During the next two decades, young technology companies like Electronic Data Systems, Microsoft and Apple discovered they could raise significant amounts of capital through Nasdaq’s market without having to meet the stringent listing requirements mandated by exchanges like the NYSE. These massive successes gave rise to the 1990s phenomenon of minting young tech billionaires seemingly overnight. The dot-com boom also made clear that Nasdaq had vastly outgrown its roots as a humble quote automation system to become one of the most dynamic financial markets in the world.
RETURNING TO NASDAQ’S ROOTS
It was in the midst of Nasdaq’s explosion in the mid-1990s that Friedman joined the company, then headquartered in Washington, D.C. Much of the business at the time was focused on competing with other exchanges to get companies to list their shares on Nasdaq. But Friedman’s first boss pointed her to a handful of trading products for which Nasdaq had received SEC approval, though the company hadn’t done much with them.
“We’d built up all these systems and different capabilities for clients, but we hadn’t really optimized them from a product perspective,” Friedman says.
In keeping with her knack for making the most of situations, Friedman drew upon her MBA education to write a business plan to figure out how to market and sell a new trading product called Portal. By the time she turned 27, Friedman had become a product manager overseeing three new Nasdaq products.
The consulting giant McKinsey & Co. was called in to help reorganize the company in the late 1990s, resulting in the creation of four distinct divisions: trading, listing, indexing and data. Out of that new structure, Friedman was tapped to lead the data division in 2000. “Becoming head of the data product division was, on the one hand, a big step. But on the other hand, it was very much a continuation of what I had been doing,” she explains, “which was to develop products and bring them to market, price them, promote them, and make sure they’re being distributed the right way.”
Friedman’s CEO predecessor, Robert Greifeld, was appointed in 2003, and one of his first priorities was to change the way Nasdaq set the closing price of shares. It was an important project that needed to be done correctly with as little disruption as possible for Nasdaq-listed companies, brokers and investors. Because data played a big role in the shift, Friedman volunteered to take on the task.
“Frankly, it was a very successful project,” she says. “I think that project gave Bob [Greifeld] the confidence to say, ‘I think you’re really good at project management.’ And a large part of corporate strategy is project management.”
Recognizing her potential, Greifeld named Friedman head of Nasdaq’s corporate strategy in addition to her role leading the company’s data division. While many of her new responsibilities fit comfortably into Friedman’s wheelhouse, she also would now be in charge of acquiring other companies. For that, she had to brush up on the finance skills she had learned at Owen, which included modeling companies to determine a fair price range at which to buy them. “That was the big stretch for me,” Friedman says. But it also increased her exposure to Nasdaq’s financial and operational side, setting her up to take over as the company’s chief financial officer in 2009.
Two years later The Carlyle Group snatched Friedman away from Nasdaq to become its CFO. She then returned to Nasdaq as president in 2014, establishing her path to succeed Greifeld as CEO.
Now that she’s running Nasdaq—which has become a publicly traded company itself, listing more than 3,500 companies on its exchanges around the world—Friedman wants to build upon the company’s roots as a technology innovator, exploring ways to improve how capital markets function for all the players involved. The key to doing that lies in its products.
Speaking at a Silicon Valley conference in April, Friedman told the entrepreneur-heavy crowd, “We were, in fact, probably a very early fin-tech [financial technology] company. … [W]e then grew into becoming more of an exchange company. I would argue today we’ve grown and matured again back into much more of a multinational financial technology company.”
Friedman says she sees four interrelated technologies that will reshape markets and financial services going forward. The first is the continued rise of cloud computing, giving organizations the ability to access computing power and storage on demand. That in turn will help facilitate the second major wave she sees coming: machine intelligence.
“I think it changes the way people make investment decisions, how they access the markets, and it allows us to give our clients much more sophisticated capabilities,” Friedman says. Layered onto both of these areas will be quantum computing, which is poised to offer market participants unprecedented processing capacity to model various business outcomes in real-time, leading to quicker and more advanced decision-making.
The fourth area that likely will have a significant impact on the financial services industry lies with the blockchain. This is a robust record-keeping system—a secure digital ledger, essentially—that is best known for powering the cryptocurrency bitcoin. While bitcoin itself doesn’t enjoy a pristine reputation, blockchain technology is already being explored and used by industries ranging from health care to banking.
“Many of the biggest payment-processing firms and banks are creating this concept of a digital currency that allows for them to transfer cash, create digital cash, and then transfer that money through a new mechanism,” Friedman explains. When that same technology is applied to recording market transactions, she says, it could streamline many back-office functions.
One key example involves issuing equity to employees at privately held startup companies. Today people still get a physical certificate of ownership—but the blockchain makes all of that electronic, Friedman says, “allowing you to keep a perfect record of ownership.”
As futuristic as Friedman may sound at times, the premise underlying her plans for the company really harken back to the original mission of both the NASD and its automated quotes system: delivering the tools and services necessary to create smooth-running capital markets that allow companies to grow and investors to play a role in helping them do that.
You can also detect more than a hint of what Friedman’s taekwondo instructor says to kids about making the most of what they’ve been given. She’s doing exactly that—just as she did in high school, in college and throughout her career. Only now, the entire market system stands to gain from what she does next.