As of June 30, 2009, Northern Trust had $75 billion in banking assets, $3.2 trillion in assets under custody, $558.9 billion in assets under management, and over 20 percent of the Forbes 400 Richest Americans as clients. It has 80 offices sited in 18 U.S. states and international offices in 15 locations in North America, Europe, the Middle East, and the Asia-Pacific region.

Steve Player: Northern Trust was one of the banks that ended up taking government money. What was the reason for this, and what did you do to move through that as quickly as possible?
Steve Fradkin: You have to remember what was happening in the world after the collapse of Lehman Brothers. Today, it is easy to talk about the successes and failures of the so-called TARP program and debate what should or should not have been done. But at that moment, everyone in financial services was working 24 hours a day, 7 days a week -- the Treasury Department, the Federal Reserve, all the big banks, investment banks, and other market participants. And, remember, at that time, the credit default swap market was pricing a 50 percent probability of failure for some of the nation's biggest and best-known institutions. There was huge uncertainty for everybody; it was terribly frightening.

It was in this context that the so-called TARP CPP [capital purchase program] was rolled out. Remember, too, that at the outset, this program was positioned as a "healthy bank" program. While the program was "voluntary," there was enormous encouragement to participate, and we opted to do so.

Since that time, much has changed, and we opted to redeem the preferred stock investment and purchase the warrant, which, in combination with the dividends paid, turned out to be a very handsome return for the U.S. Treasury and taxpayers.

SP: Northern Trust's name doesn't get mentioned with a lot of the calamity that's going on in the financial services industry. How have you managed to steer past the pitfalls that tripped up other companies?
SF: The financial crisis was no stress test. It proved to be a "stress reality" far more serious than anyone expected. This noted, you are correct that Northern Trust navigated this storm very effectively. While there are many factors that contributed here, the root of our performance came down to strict adherence to a very focused business strategy anchored in attractive demographic businesses that are relatively lower-risk and higher-growth.

These strategic choices were also complemented by a consistently very conservative strategy. We did not follow the herd. We were conservative with our balance sheet investment portfolio. We were conservative with our loan portfolio. And, we were conservative with our business strategies. Our formula has been consistent, simple, and distinctive. Operate in attractive businesses. Focus intensely on serving clients with excellence. And, execute with conservative financial strategies. It is not a complicated formula. What is complicated is sticking to it when the herd diverges and ignores risk. Fortunately, we stuck to our strategy and were, in the end, rewarded for our attractive operating model and execution.

SP: Thinking back to a year ago when the financial markets start to reel, what was happening here at Northern Trust? How did you keep marching forward with that same strategy and result?
SF: Northern Trust's GAAP reported revenues increased 21percent in 2008 vs. 2007, while operating revenues, adjusted for one special item, increased 16 percent vs. 2007. The performance compared very favorably to a market environment exemplified by a 38.5 percent decline in the Standard & Poor's 500 stock market index over the same period.

Though not immune from the financial markets, we kept marching forward amidst the difficult environment building on our strong corporate culture. As a company, we stayed very focused. There were lots of things going wrong -- at Bear Stearns, Lehman Brothers, UBS, Freddie Mac and Fannie Mae, Lehman Brothers, AIG, Wachovia, Merrill Lynch, and elsewhere -- but knowing who we are and staying focused were the key dimensions.

SP: Did you see a flight to quality? Was that part of the reason revenue was up?
SF: Yes. We absolutely did see a "flight to quality" and "flight to safety" phenomenon, particularly during the peak of the crisis. Individuals and institutions were truly scared, and they were looking for proven beacons of strength during this period. Northern Trust clearly was a beneficiary of this phenomenon.

SP: How did you keep your troops focused and rallied when there was so much uncertainty out there?
SF: Things were moving or, more accurately, cascading extremely quickly throughout the financial crisis. Amidst this rapid degradation, one of the biggest challenges was securing timely and accurate information. We have a leadership team with a high degree of cooperation and shared experience. For example, our management committee averages 31 years of industry experience and 21 years with Northern Trust. This means that we know one another well and we know the company well, which helps in a crisis. Throughout the crisis, everyone on our team worked very long hours to make sure that we could effectively manage our risk profile. It was a great team effort, though I think it is safe to say that it was highly stressful for all parties concerned.

I would also give great credit to the government and the regulators. We talk a lot about the flaws and the challenges, and what our officials should have done and could have done. However, to be fair, this was a historic crisis with no applicable playbook. Decisions had to be made very quickly, and they had to be made at night and on weekends and before markets opened the next day. In any crisis, nothing is handled perfectly, but with the passage of time, I believe that people will look back and say that we were facing a very radical set of challenges with extremely significant problems. Government regulators took bold and dramatic actions and stemmed what could have been a much worse situation.

SP: Were your clients touched by any of the equally shocking things that emerged later -- the Ponzi schemes that began to come out of the woodwork?
SF: The losses to investors resulting from the Madoff affair and a number of other frauds that have been exposed in the past year have been truly shocking. I do not know whether all of our clients were untouched by these schemes, but I can say that Northern Trust did not have any relationship with Madoff, his firm, or other firms involved in these frauds, and we did not invest any client funds through these firms. I feel very good that our conservative investment strategy and careful selection process saved our clients from financial losses caused by these schemes.

SP: You mentioned that you've been here for 24 years. Is this the only place you've ever worked?
SF: I feel very fortunate to have joined a very special company after completing my studies. Northern Trust is, indeed, the only place I have ever worked on a full-time basis.

SP: Where did you go to school?
SF: I received my undergraduate degree from Washington University in St. Louis and then completed the executive program at the Harvard Business School.

SP: So how did you get from there to Northern Trust?
SF: I was born and raised in Chicago. Northern Trust was always a highly regarded and iconic brand in the city, so I thought that it would be a great place to get my training and start a career. My plan was to work for a few years until I figured out what path I wanted to pursue. I am still working on that -- 24 years later -- but Northern Trust has been a great company with a culture that creates opportunities, and I have been the beneficiary of this philosophy consistently over the years.

SP: How did you get tapped for the CFO position?
SF: My path to the CFO role was not conventional or predictable. I am not a CPA -- nor did I work my way up through the treasury function. Instead, I have had a very diverse set of roles all around the company, from compliance to marketing, from sales to international, and on through general management running businesses -- all before being asked to lead the financial management function.

The CFO job means very different things to different people, and it is done differently in different companies and even within the same companies at different times. At the time I was asked to serve, Northern Trust was looking for more of a generalist business background in candidates. This said, I do not think that this is a "right" or "wrong" judgment. Rather, it was just where we were in our history and needs at that point in time. However I ultimately was selected, I feel very privileged to have the responsibilities that I do at Northern Trust.

SP: Why do you think they tapped you?
SF: At the time that our prior CFO retired, one of our priorities was to modernize the financial management function and operate it more like a business. The thought was that having someone who had run a business might help to bring the function into parity with the other activities across the company.

SP: And how has that played out?
SF: I think that careers are a journey, not a destination. The leadership team of the finance function at Northern Trust has thoughtfully assessed where we are; what we need in terms of people, technology, process improvements; and so forth. We are very proud of the progress we have made, but, of course, there is more work to be done.

We have a finance transformation initiative under way as we continue our quest. We define "finance transformation" at Northern Trust as an array of initiatives, big and small, designed to continuously improve the effectiveness of finance-related functions, broadly defined. We do not think of it as one thing; we think about this as a journey on many fronts, big and small, noticeable and not, toward this unending quest for excellence.

When we think about the finance transformation journey generally, we break it into five themes: strategy, people, process, infrastructure, and financial performance measures. As we go through a year, we have a number of things on our plate that we want to accomplish. At the end of the year, as we evaluate our performance, we typically think about what progress we made across these themes. For a finance transformation to succeed, we believe that you need to make consistent progress across the entire spectrum of activities.

SP: How do you know that you are making progress on the benchmarks or measures? Are there signposts along the way?
SF: Yes. Let me give you a small example that has yielded successful results for us. When we started this journey, we did not have a strategy for the financial management function per se. This may sound unusual. It does not mean that the function was not accomplishing things and doing things, but simply that it did not view itself as a business in the classical sense. So, we built the strategy, which we formally update each year and use to benchmark or measure our performance along the way.

SP: How was it, building that first strategy?
SF: Developing the strategy was easy. What was a bit more challenging was capturing the hearts and minds of our leadership team, who needed to implement the strategy, because it was something new and different. Some of our financial management leaders, at that time, associated strategy with a "business" and were not used to thinking about strategy in the context of a function as well. Now, however, it is a very normalized part of our planning process. We have a strategy and we update it each year. We keep tabs on how we have done vs. the prior year and we manage our financial management function like a business.

SP: How are you progressing in terms of being a better business partner?
SF: We feel very good about our progress and the contribution we make to supporting Northern Trust's other business partners. The financial management function has both a centralized component and a decentralized or business unit component. A lot of what we provide is the information that people use to make thoughtful and prudential business judgments. As part of our transformation journey, for example, we have upgraded the functionality, speed, and flexibility of the information that our business partners use to make decisions. There is, of course, an always unquenchable thirst for more information, but we have made tremendous progress. This progress gets noticed and is appreciated by our partners. The technology is better, it is on the desktops of our partners, and, it is faster.

SP: Let's talk a little about some of these processes that you've improved. What's working for you?
SF: One example would be our budgeting and planning process, which has improved each and every year. Unfortunately, notwithstanding our process improvements, the industry in which we operate has recently experienced extremely difficult and volatile conditions, which only further highlight the criticality of excellent forecasting and budgeting.

SP: Any plans to move beyond budgeting to a rolling forecast or continuous planning, or are you happy with what you have?
SF: We continuously debate our processes and approach. I do not think that budgeting is dead yet, at least not here at Northern Trust. A lot of what we have found here is that there is no one right way to think about budgeting and forecasting. There is a certain pendulum effect: If you do it one way for 5 or 6 years, it is not that it is wrong, but sometimes you just have to try it another way to ensure that thought processes do not atrophy. You centralize, you decentralize; you dotted line, you hard line. Just because you change does not mean that you had it wrong before; sometimes it is just healthy to shake it up a little bit, giving people a chance to stretch and consider things through a different lens.

SP: Are budget numbers tied to incentive compensation?
SF: Yes, but most of our compensation plans leave some discretion to apply sound judgment. We are a believer that if you set up incentive plans that are completely numeric, you will incent completely numeric behaviors. Accordingly, what we try to do is to set numeric targets. We want employees to exceed them. But how they beat them or exceed them matters. There are some years when we do not make the targets but, frankly, the performance was outstanding. We want the flexibility to reflect this in compensation. In other years, we may beat the targets by a considerable margin but feel that the environment was a big factor -- so we may opt to reduce incentives somewhat to reflect the environmental tail wind that was not anticipated in the planning process.

SP: How frequently do you forecast today?
SF: We do different levels of forecasting. We do so-called deep dives, typically several times a year, in addition to our regular ongoing process. This said, right now we are not spending a lot of time on regular deep dives because the environment is simply too volatile to make this worthwhile. Every month, we are looking at where we are and projecting it out, but I would say that the return on a granular level of forecasting is not there right now when the markets are this disrupted.

SP: Do you provide earnings guidance?
SF: No, we do not provide earnings guidance. Our focus is on serving clients with excellence and managing our business to the best of our ability. We let the analysts and other industry pundits focus on quarterly earnings expectations and predictions.

SP: I agree that it should be avoided. A lot of management teams don't realize that earnings guidance is a management forecast ...
SF: Of course, many view this differently, but we believe that our job is to run the business. We obviously have our own internal forecast, but we let the investment community come up with their own projections. This said, we have a very open and transparent investor relations program. We meet with investors and analysts all the time. But what we talk about is who we are, what we do, and how we do it, and we let others decide what macroeconomic assumptions to put on interest rates and markets and all the rest of it to predict how that might impact our results.

SP: We hear a lot about financial institutions looking at the area of profitability analysis -- customer profitability, product profitability, etc. Have you done anything along those lines?
SF: We have put a lot of work into client and product profitability in recent years. It is not easy, but we have invested in systems and in better processes to improve our insights. For a company like ours, which is a client-centric, relationship-based institution, understanding client profitability and product profitability is essential to our success.

SP: What's next on the agenda for the transformation?
SF: The transformation quest never ends. In any company of size, there are always things to improve, so we try to keep that edge. In the banking industry, for example, we have a significant initiative in place to support the Basel II accord, which requires rigorous risk and capital management requirements designed to ensure that a bank holds capital reserves appropriate to the risk the bank exposes itself to through its lending and investment practices. We also have a number of other smaller, though equally important, transformation initiatives.

SP: As you look back over your career, what key lessons have you learned?
SF: Far be it from me to dispense advice to others on careers. I am still learning career lessons each and every day through my own journey. With this as a caveat, a few simple observations come to mind. The first is to not try to "overengineer" your career. Typically, if you review the resumes of people of accomplishment, it looks as though each step logically led to the next. However, if you talk with them about their careers, they will frequently admit that they had no idea where they were headed at the time they made various career choices. The lesson I draw from that is that career success is about excellence, about achievement, about attention to detail. If you deliver on these fronts, on average, over time, your career will advance.

My second observation would be simple. Never, ever, settle for less than your best. The people who generally rise the fastest -- assuming a reasonable level of intelligence -- are not necessarily the smartest by a technical definition of intelligence. They are those who give 150 percent on everything -- all the time. And the reason they rise is actually quite simple. When you are higher up in the pyramid, if you want to use that construct, you do not have enough time. You are too busy, and so you start looking around for people whom you can engender with your confidence and who you believe will get things done and done to an exceptional standard of quality. The people who earn that designation are the people who are always timelier, more accurate, more professional, and more reliable, and they are sought out because they are noticed for their excellence and reliability. It is a simple recipe.

Last, when I think about people who succeed, I have noticed that leaders persevere beyond their accomplishments. They look forward. They are proud of what they have done and their resumes keep building. They are always looking at what they can do next, as opposed to reminding us of what they did in the past. If you think about the most successful people in almost every endeavor, they are continuously marching forward, and this is what we look for here.