May Your Next Disaster Be Your Greatest Success
By Rob McMillan
When this story arrived at Napa Valley Features, we decided it was too important to wait to share it. In “May Your Next Disaster Be Your Greatest Success,” Napa resident Rob McMillan shares his own experiences when Silicon Valley Bank, the 16th largest bank in the United States, was shut down by federal regulators on March 10. McMillan’s career at Silicon Valley Bank has spanned more than 35 years. One of the top wine-business analysts in the country, several times he has been named as one of the Top 50 Most Influential People in the U.S. wine industry. His annual “State of the Wine Industry Report” for Silicon Valley Bank, where he was founder and former Division Manager of the Wine Group, was always highly anticipated by winery owners, journalists, entrepreneurs and investors. Then, without warning, he learned that the bank where he had spent so many years, had failed. In his exclusive story today, he takes readers inside the events of March 10 and the aftermath.
May Your Next Disaster Be Your Greatest Success
By Rob McMillan
Living in Napa is almost idyllic. I say “almost”…
Despite all of Napa’s natural beauty, if you have lived there you know there are inconveniences such as high pollen counts, and if you live Upvalley, actually getting down-valley might as well be driving to Las Vegas. It’s just unimaginable.
Every rose has its thorns. In the last nine years we’ve had to endure two earthquakes, two major wildfires and a pandemic. And like all of the other Napkins here, living through several disasters has taught me a few things. That experience came in handy when I awoke on March 10 to find my employer, Silicon Valley Bank, had experienced a run on its deposits and was out of business.
No matter if you are a resident wondering where your “go bag” is when it’s time to leave your home or a business owner taking stock in a disaster, there are issues to deal with when disaster comes calling. The first and most important is paralyzing fear.
History lessons
Franklin Delano Roosevelt famously said in his 1933 inauguration speech, “The only thing we have to fear is fear itself.”
FDR was dealing with a protracted Great Depression and needed people to see promise and invest in commerce. Fear of failure, a lack of trust and fear of the unknown were keeping investors’ hands in their pockets and thwarting economic recovery. FDR didn’t just get back to normal. He converted disaster into four terms as President of the United States.
I can relate to FDR’s comments now after seeing firsthand what fear does to a team amid a disaster. The team and I at SVB were able to navigate through the failure of the bank and come out on the other side in a better position than when we started – unbelievable as that sounds.
Let me walk you through my horror story and tell you what it was like from the inside.
Just another day
On Wednesday, March 8, the bank announced it would raise money. It was over a public issue, so I took it in stride. The next day one particular venture capitalist wired out their firm’s cash from the bank and recommended that all of their portfolio companies do the same thing. Within hours social media was spreading gossip across the U.S. technology economy. Gossip created news, then fear, and money was wired out of the bank at blinding speeds.
Before the end of the day on Thursday, March 9, depositors had pulled out $42 billion of cash in a matter of hours. That’s a large enough number in a single day to implode any bank in the United States.
But since I had no knowledge of any of this and it was just another day for me, my wife and I blissfully went to a jazz club in Oakland that night to have dinner, drink some wine and see a friend play.
Dealing with fear
The next day, Friday, March 10, I woke up and looked at my cellphone. Silicon Valley Bank’s stock was halted in trading, and a short time later the FDIC took over control of the bank.
The bank’s clients had no access to their money. Payrolls in process weren’t put through, lines of credit were frozen, the employees’ stock holdings and retirement savings were lost, and none of the employees had any communication from management. There was no management. We were on our own.
For those of us in Napa, that feeling of shock is familiar, given the disasters we’ve all endured. When the many things that support our lives that we take for granted are ripped out from under us, we’re left in disbelief. Our routine is shattered, and we have to find ways to work around our new reality.
How was I doing emotionally that day? Not great. The FDIC informed me that I would have a job for only 45 more days. My investments were put in a meat grinder, and I wondered how I was going to pay my taxes and make my mortgage payment. I was in shock, thinking about myself and processing my loss. What should I do?
Leaders aren’t appointed
The next day — Saturday, March 11 — I woke to a revelation. This situation impacted more than just me. I needed to come up with a wider solution because this event injured all of the employees of the Wine Division, their families, our clients and neighbors. What about them? Who would look after their needs?
The problem I was facing in finding a solution was that the bank’s executive management had been fired by the president of the United States, and I had no authority to do anything. I have no official management responsibility today and no direct reports. It wasn’t officially my problem to solve.
But after more than 30 years in the wine business in a public role, my sphere of influence is as wide as anyone’s in the entire wine industry. I have a reputation for doing the right thing, and I believed that moral equity in others’ eyes would give me sufficient authority, and the division would follow my lead. What could I do?
The solution I concocted was to find a bank to buy the entire Wine Division from the FDIC. That way, if SVB wasn’t sold as a package or if we didn’t like the buyer, I thought I could move all of the division’s employees in unison to a new institution.
One more problem for me, though: I couldn’t actually sell the division. The FDIC owned it. Another minor problem was that I had never sold a bank before and didn’t have a Rolodex of possible buyers. Needless to say, I was taking on something a little outside of my comfort zone.
Despite my self-doubts about navigating a bank collapse, I elected myself to lead and came up with a solution that I believed could help everyone — clients and employees alike.
Over-communicate
Leaders are used to having the answers when a business is running smoothly. But in a crisis nobody has all of the answers, so a leader has to be more reflective at those times, acting with humility and transparency while still staying optimistic. While it’s not intuitive, telling employees “I don’t know” during a crisis is far better than saying nothing, or even worse — pretending you have all the answers. The only thing worse than pretending is telling everyone there’s no hope.
Communication options during an emergency should be installed ahead of time. In my case, since I never planned to lead a team through a disaster I didn’t have any formal means of such disaster communications set up. But I lucked out.
Silicon Valley Bank was at the top of the news cycle. And despite the ugly positioning in the press, I saw that as an opportunity and another asset.
I have a blog that is followed closely by clients, the industry and the press. I decided to write an article that intentionally left many open questions, such as “What’s next?” I closed the post with a statement saying that I would look to land in a spot that was the best solution for the industry as a whole, our clients and the employees. My hope in writing that leading statement was to jar bank investors into realizing the Wine Division could be purchased in its entirety.
The next day, Sunday, the 12th, I started getting phone calls from banks and members of the press who had read my blog. The plan was working!
Fear of the unknown
Monday morning, March 13 — 48 hours after the takeover — I had the first chance to address a group of 39 employees who were all stunned and fearful. You could see it on their faces. Everyone had bills to pay, and there was no job security. We all were in the same boat.
Being empathetic during a crisis means recognizing everyone is grieving. Providing grace and acceptance for emotional reactions during such times is everyone’s job. But there is a limit for leaders.
While it would be therapeutic to spend all the time talking about the pain everyone was enduring, in a dark period leaders have to step into the light. You can’t linger in pity or anger. Your solution can’t be false hope, either, or you lose credibility. You need to provide a vision for real hope.
The instinct in a crisis, especially with an absence of information, is to flee, to go find another place to work. Knowing this, and with everyone naturally wanting to take solutions into their own hands, I asked for people to put their fear aside, trust me at my word and take a leap of faith. Give me two weeks before interviewing, I said to them. This would allow me time to find a solution and move the entire division en masse to a new bank, if necessary.
Two weeks wasn’t a large commitment, but patience was thin at that point. Having never tried what I proposed, I naturally had doubts of my own, but I was asking for their faith. To find success I had to have faith in myself first. I knew that if I couldn’t overcome self-doubt and find possibilities, then I couldn’t lead anyone else out of this crisis.
Executing
Over the subsequent two weeks, I published a second blog post where I openly discussed the work I was doing to find potential buyers for the Wine Division. Clients and the industry had a vested interest in knowing what was happening. I saw talking openly as critical to the success of my plan, and truthfully, fully aligned with the FDIC’s plan to sell the bank. Even though the FDIC asked employees not to talk to the press, I ignored them. What was the downside of being honest? They could fire me. But as a friend of mine likes to say, “Never threaten someone with a party.”
I took calls from dozens of financial institutions — REITs, hedge funds and commercial banks — each of whom wanted to acquire SVB’s Wine Division. I was able to direct at least a half-dozen banks who wanted to buy just the Wine Division to the FDIC. At the end of two weeks, we were ready for anything from the bank being split up to a sale being forced on an unappreciative buyer by the FDIC. And so far there were no defections.
Then I started adding an emotional framework. I talked about the values I hold that don’t change and can bring clarity during a time of distress. The first is that we act more as an investor versus a banker. That means staying on the same side of the table in the boardroom. Our role wasn’t lending and collecting money. The best client outcomes happen when both client and bank goals are aligned. What we were trying to do was to keep everyone together and sell the division to the right buyer aligned with the clients’ needs.
Another value is transparency, which I’ve discussed. You and your client-facing staff can’t go into a shell when the messaging is difficult. Businesspeople want to know what’s coming and where they stand. You have to make the difficult phone call.
A third value I hold to is the importance of representing your firm, especially when your firm screws up. You can’t take credit for team success and then tell a client that it’s not your fault when there is a problem. Passing blame or just saying “I’m sorry” isn’t enough. Blaming others makes you look weak when your customer is looking to you for strength and solutions.
I apply many other values at work. I fully expected we’d see clients leave from fear. My belief is that you cooperate with the client when they are leaving. If a client honors their debt contract, when they decide to leave you try to make their departure the best imaginable experience. That’s not a value I see practiced often, but my view is that helping a client at a point of departure enhances the opportunity to have them come back at some time in the future. Keep the door open.
Learning
On March 27, three weeks and three days from the date of the takeover by the FDIC, Silicon Valley Bank’s domestic operations were sold to First Citizens Bank out of Raleigh. It was the best possible outcome.
First Citizens isn’t a behemoth that would have absorbed us. They are values-driven and stable, with an agricultural division. There is no industry overlap between the two institutions, so staff cuts aren’t forthcoming. Their directive to us is, “Keep doing what you’ve always done.” They decided to run SVB as a separate division, with the name Silicon Valley Bank — a division of First Citizens Bank.
Silicon Valley Bank’s Wine Division was part of a failed institution on March 10. Now we’ve come full circle. Though the journey was painful, we demonstrated trust in each other, and the team had faith that we’d find a path.
In the final accounting we retained all 40 of our employees — every one of them. We retained 100% of our 251 borrowing clients. We stayed focused on the mission of serving clients instead of giving in to fear. As a result, we also added a half-dozen substantial new client relationships in the middle of the storm. And while the banner is a little bruised, our name is still Silicon Valley Bank. We are back to doing what we’ve always done — staying committed to the premium wine business and working with client/partners — and today we’re back at full strength.
As a team, we were able to contain fear, convert fear into faith and hope, and finish this trial better off than we were headed into the disaster.
Let me leave you with this final thought: When disaster comes knocking again, be a leader. Look after others. Find paths forward for more than yourself. You can do more than survive a crisis. Like FDR and the SVB Wine Division, I hope your next disaster will be your biggest success.
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This is a very interesting inside look at the crisis. Well done. Of course, what it doesn’t address is the fact that the 2018 rollback of some provisions of Dodd-Frank is what allowed the mess in the first place. The fact that the wine division managed to survive is terrific, but how much better if the failure hadn’t happened at all? If the restrictions of Dodd-Frank had been maintained for all banks with assets greater than $50 billion, instead of being raised to cover only banks larger that $250 billion in assets? The CEO of SVB was one of those who led the charge for this change. The actual message? Don’t allow bank lobbyists to pressure lawmakers to make ruinous decisions for the country.