The Wall Street Veteran Who’s Helping Google Get Disciplined

Financial Engineer: Porat led Google’s ­reorganization under the holding company Alphabet last year; since she joined the company in May 2015, its stock price has risen more than 40%.
Photograph by Winni Wintermeyer

CFO Ruth Porat is pushing Google “creatives” to bring their costs under control.

Subfreezing temperatures didn’t stop Ruth Porat from setting out for her beloved spinning class. But black ice kept her from getting there. Early one Sunday in January 2015, Porat slipped and fell near her home on Manhattan’s Upper West Side, shattering her left shoulder blade. After she rushed to an emergency room, doctors told her she would need immediate surgery.

Wrong answer. Porat was the chief financial officer of Morgan Stanley ms , whose annual earnings call was two days away. Instead of going under the knife, she went to her office, arm in a sling. Porat refused painkillers, saying they would impair her judgment, and put in two long workdays before the Tuesday morning call.

Only after that did she go in for surgery—driving straight from the office to the hospital. But within days she was back in Midtown Manhattan, explaining the company’s results to Morgan Stanley’s board. “We could all see her hand was very swollen and black and blue,” recalls Hutham Olayan, a senior executive at Saudi conglomerate Olayan Group and a longtime board member. But Porat “was presenting as if nothing had happened.” Porat’s shoulder remained painful for months, but it didn’t keep her from traveling. A few weeks after the accident, she flew to California on a trip that helped her land one of the most prominent and difficult jobs in technology—becoming CFO at Google goog and helping the tech giant transform itself as it approaches its third decade.

To see the full 2016 Most Powerful Women list, click here. (Ruth Porat is No.13 )

POR 09.15.16 Resume sidebar

A high tolerance for pain isn’t literally a job requirement for most leaders. But over a career at the highest levels in corporate finance, Porat has been equally unflappable, navigating physical obstacles and fighting great metaphorical ­discomfort—the race-the-clock stress of the financial crisis, the tension of negotiations among big-ego executives, and now the culture clash of imposing financial discipline at tech’s biggest idea factory. In doing so, Porat, 58, has the rare distinction of having been one of the most powerful women in both finance and technology—two industries in which women have struggled to reach senior positions.

Porat’s work ethic stands out even by the caffeinated standards of Wall Street. But she far outshines the pack, according to former Morgan Stanley CEO John Mack, in her ability to reason her way through the most difficult financial problems. She matches that analytical rigor with an approachability and warmth that make her a consummate boardroom diplomat. “Ruth is the only person who can deliver bad news to me, and I’ll still like her,” says Jeff Immelt, CEO of GE ge .

After nearly 30 years in finance, Porat now calls a different industry her home. At Google, where she started in May 2015, Porat has traded suits and heels for hoodies and jeans. She jumped immediately into the task of restructuring Google under a new corporate umbrella, Alphabet—and showing investors how much the company was earning from and spending on its core search and ads business on the one hand and its “moonshot” projects on the other.

So far she has given shareholders plenty to celebrate. After her first earnings report, in July 2015, Google’s market value increased $60 billion in a single day, the largest such gain ever for a U.S. company. In all, Google’s stock (now Alphabet’s) is up more than 40% since Porat switched to Pacific time. “No normal person could walk into a massive restructuring … with new subsidiaries and compensation and be completely fine,” says Alphabet chairman Eric Schmidt, who calls Porat “extraordinary.”

Still, the Alphabet reshuffle is just one step in a long-term transformation, one that puts Porat at the center of a contentious struggle over Google’s future. For all its impressive innovations, from the Android operating system to advances in artificial intelligence, Google still gets about 95% of its revenue from online advertising, and industry watchers believe it will inevitably lose its edge there as rivals grow stronger. “The clock is ticking on Alphabet’s dominance,” says independent technology analyst Rob Enderle. Google needs another hit—ideally from one of the nonadvertising businesses now labeled Other Bets. Inventing the next breakthrough isn’t Porat’s job, but as CFO, she’s the one leaning on the inventors to show results.

Porat led Google’s ­reorganization under the holding company Alphabet last year; since she joined the company in May 2015, its stock price has risen more than 40%.Photograph by Winni Wintermeyer

And that’s where the tension lies. Under Porat’s scrutiny, those business units are facing unprecedented pressure to bring their costs in line with their revenue. Schmidt and Google founders Larry Page and Sergey Brin say such discipline will help Google spot winners more efficiently. But some of the company’s “smart creatives” fear that Alphabet could inadvertently strangle the next great innovation in its infancy, in the name of fiscal prudence.

Porat herself recently told an audience that “you can’t cost cut your way to greatness.” (She declined to speak on the record for this article.) Yet that principle hasn’t stopped the company from cutting, and a recent string of executive departures suggests that some cuts are drawing blood. In short, the hoodie honeymoon phase is over.

Porat’s transition to Silicon Valley was in fact a homecoming. She was born in England, but her family moved to Palo Alto when she was a child, when her father joined Stanford’s SLAC National Accelerator Laboratory. Dan Porat, a Holocaust survivor who never earned a high school diploma, became an accomplished physicist who authored more than 40 scientific and technical papers. Frieda Porat, Ruth’s mother, was a psychologist, and Ruth never doubted she would have both a family and a career.

Her love for math and problem solving led Porat to Wall Street. After graduating from Stanford and from business school at Wharton, Porat joined Morgan Stanley as a junior mergers-and-acquisitions banker in 1987. She hit her stride in the mid-1990s after becoming head of Morgan Stanley’s technology banking team, just as Wall Street was growing infatuated with the shiny new Internet.

Porat worked closely with Mary Meeker, Morgan Stanley’s influential tech-stock analyst, who’s a confidante to Porat and godmother to her three sons. (Porat and securities lawyer Anthony ­Paduano married in 1983.) At a time when tech analysts tended to be exuberant bulls while bankers were more skeptical, “Ruth was the oil in the machinery” that helped the team agree on which transactions to back, says Joe Perella, then head of Morgan Stanley’s investment banking. Porat and Meeker could be an irresistible sales force, bombarding tech executives with data and ideas to win the right to lead their stock offerings. But Porat also had no problem telling startups to slow down and prove their business models before going public.

Porat (right) with famed tech-stock analyst Mary Meeker in 1999, when Porat headed Morgan Stanley’s technology banking team. The duo helped the bank become a dominant force in tech IPOs.Photo: Jeffery Salter—The New York Times/Redux

Mack eventually promoted Porat to vice chairwoman of investment banking—a job that gave her influence with bigger companies. When Immelt first met Porat, he had just succeeded Jack Welch at GE. “When bankers would visit, they would take the first 30 minutes and tell me Jack Welch stories, like that was supposed to make me feel good,” Immelt recalls. “Ruth never did that.” With Immelt, too, Ruth earned respect by advising against some deals, even when saying yes could have reaped big fees for Morgan Stanley. When GE spun off insurance unit Genworth gnw in 2004 in a $2.8 billion IPO, Porat pressed Immelt to set the opening share price lower, arguing that the stock would flounder if priced too high. “CEOs hate to hear shit like that,” Immelt says. “But she was right.”

In 2006, Morgan Stanley assigned Porat to its financial institutions banking business, which helped big banks raise capital. That meant she was, in effect, sitting in a lifeguard tower when the financial-crisis tidal wave made landfall. In June 2008, Mack received a call from Hank Paulson, then the Treasury secretary, who was assembling a team to help the ailing mortgage giants Fannie Mae fnma and Freddie Mac fmcc . “I need the best minds you have to help figure out what to do,” Paulson told Mack. Mack sent two top bankers, Porat and Bob Scully. When Porat arrived in Washington, Paulson told her, “This is going to be the most exhausting and rewarding thing you ever do.”

“Ruth is the only person who can deliver bad news to me, and I’ll still like her.”

Jeff Immelt, CEO, GE

Porat and Scully designed a plan to put the two entities under conservatorship, with the feds taking over their management—the only way, Paulson says today, to provide “a very necessary long-term guarantee” to keep the mortgage market liquid. Executives at Fannie Mae and Freddie Mac bitterly opposed the move, but it very likely kept the Great Recession from getting even worse. “I can’t tell you how many times Paulson called to thank me for giving him Ruth,” Mack says. Paulson also tapped Porat to help rescue insurance giant AIG aig . When she returned home late one night to shower during that ordeal, a former colleague recalls, she found a collage of Post-it notes of support waiting in the kitchen; Porat’s 11-year-old son wrote, “Fix this so I can have my mommy back.”

Porat’s Washington experience helped her earn a promotion to chief financial officer, in January 2010. The ensuing years weren’t great for Morgan Stanley—its profits have lagged since the financial crisis—but Porat earned plaudits for stabilizing its finances and helping it meet government “stress tests.” She also showed a knack for lightening the mood. When the staff would work weekends and nights to prep for earnings reports, for example, Porat would blast pop music and sing along.

 

By late 2014, Porat was ready for a change. She had been considered as a candidate for deputy Treasury secretary but withdrew rather than undergo a banker-bashing confirmation hearing. As a trustee at Stanford, she was making more trips to the West Coast, and colleagues say she felt nostalgia for Palo Alto, where her father still lives.

Read More: One Year In, Ruth Porat Remains Google’s Financial Disciplinarian

Mack encouraged Porat to reach out to Bill Campbell, the longtime top adviser to Google and Apple aapl . One Saturday in February 2015, Porat visited Campbell at his Palo Alto home to talk about a career change. As Campbell later told Fortune (in an interview before his death this April), Porat had one stipulation: She didn’t want another CFO job. Campbell responded, “Well, I have the perfect job for you. How about the CFO of Google?”

What Porat hadn’t known was that Google’s then-CFO, Patrick Pichette, was leaving—and that her work during the financial crisis had impressed Google’s leaders. Porat told Campbell she was intrigued, and word got around fast. Almost immediately after she left Campbell’s house, she got a call from Page’s assistant, setting up a meeting. The courtship was quick too: Less than a month after her visit with Campbell, Porat had a job offer, with stock and bonuses that brought her hiring package to almost $70 million.

Comparing today’s Google to crisis-era Wall Street may sound like comparing a mosquito bite to a heart attack. But even successful executives have nightmares, and at Google those involve the company becoming the next Yahoo or Nokia—tech bellwethers that fell behind as the industry’s landscape changed. That’s why the eventual success of Other Bets innovations matters so much. Investors, too, want assurances that Google’s research is paying off. When the company went public in 2004, Page and Brin publicly declared that Google would never sacrifice long-term goals in response to pressure from shareholders. Twelve years later, with Google one of the world’s most widely owned stocks, the company can no longer say, “Just trust us.”

On Porat’s first day at Google, Page explained to her his vision for a holding-company corporate structure and told Porat that implementing it would be her top priority. In August 2015, three months after Porat had started, she and Page announced the creation of Alphabet. Google became a subsidiary of Alphabet, as did most of its smaller, research-driven units, including connected-home business Nest and Google Fiber, its home broadband initiative. Alphabet now discloses revenue and profits for two categories: Google and Other Bets. The Google bucket includes not only the advertising business but also cloud services and Android. In the second quarter of this year, that bucket accounted for 99.1% of Alphabet’s $21.5 billion in revenue; all the Other Bets, just 0.9%.

Porat’s investor-relations team is explaining Wall Street analysts in 15- to 30-minute “office hours” meetings—standard procedure for many companies but previously unheard-of at Google. “I was shocked when I met Ruth for the first time, and she actually asked our team, ‘What can Alphabet do better?’ ” says Eric Sheridan, managing director of UBS’s Internet and interactive entertainment research group. ­Porat won more investor goodwill in October 2015 by announcing a $5.1 billion stock buyback.

POR 09.15.16 Chart

But inside Alphabet, the new order is generating more tension than elation. Porat’s team meets regularly with each Other Bets business, walking them through their units’ spending and earnings, and urging them to make tradeoffs to bring them in line. This is Corporate Finance 101, but it represents a drastic shift—and an uncomfortable one for many project managers. “Ruth is approachable and warm, but she is persistent in what she wants—and she asks direct questions,” says one Google em­ployee, implying that such bluntness is, itself, new.

Current and former employees also say the scrutiny goes hand in hand with the kind of cost cutting companies that aren’t Google have endured for decades. Some cuts are relatively minor: Employees are encouraged to use video conferencing instead of traveling to meetings, for example. But others have deeper strategic implications. One source close to the company says it’s now difficult for Other Bets to get new hires approved. The Bets are also being told to be self-sufficient administratively: They can rely on Alphabet for functions like legal counsel, human resources, and public relations, but only if they pay Alphabet for the services. (One Other Bets subsidiary was billed $500,000 for a year’s worth of PR help.) If these units were independent companies, of course, they’d be shouldering these costs on their own. But within Alphabet, they represent unfamiliar constraints, and for some, a signal that the culture Google was built on—­focusing on innovation over profits—is dissipating.

Google executives reject that assertion. Schmidt, the chairman, acknowledges that the focus is new but says it allows Alphabet to invest more efficiently in its winners. Alphabet has been aggressively hiring engineers for cloud-computing and artificial-intelligence projects, for example. “The cost cutting is real, and it’s the right thing to be done, and it’s driven by [Porat],” Schmidt says. “Before she was there, we had lost discipline.”

But is discipline really the problem? In the most recent quarter, Other Bets lost an ugly $859 million on $185 million in revenue. Still, when you consider that Alphabet generated $7 billion in free cash that quarter, the losses seem like something the company could easily absorb. Cost cutting, says Enderle, the analyst, “is like taking painkillers when you are sick. At some point you are going to have to address what is making you sick.” The real issue at Alphabet, he adds, is that “what they are spending money on isn’t successful.”

Merited or not, Alphabet’s reforms have pushed some managers toward the exits. Nest founder Tony Fadell left in June, not long after telling tech website the Information that “the fiscal-discipline era has now descended upon everything.” (He remains an Alphabet adviser.) Three executives from Google’s self-driving-car unit left in August, as did Bill Maris, founder and head of Google’s venture arm. And there have been reports of an executive shakeup at X, Alphabet’s research lab.

Alphabet's Project Loon Autolauncher designed to fill and launch a new balloon every 30 minutes. Alphabet’s Project Loon Autolauncher designed to fill and launch a new balloon every 30 minutes.Photo: Courtesy of Google

The departures have prompted plentiful chatter around Palo Alto. But having navigated the battles of the financial crisis, Porat knows how to tune out noise. She also has the kind of personal experience that keeps corporate infighting in perspective: She has beaten breast cancer twice and has been in remission since 2003. As Meeker, now a partner at venture capital firm Kleiner Perkins, puts it, “Don’t underestimate the leadership talent that develops from crisis management.”

That talent has made Porat an important voice for Google, inside the company and out, at a time of momentous change. This past January, at the World Economic Forum summit in Davos, Switzerland, Porat and Schmidt hosted a dinner for European leaders. They decided that Porat would make introductory remarks and then yield the floor to Schmidt. But as Porat began talking, Schmidt realized she was giving a far better speech than he could. “The way she spoke showed she knew Google so well,” he recalls.

For a moment, Schmidt wasn’t sure what to do. But he quickly arrived at an answer: “Just shut up and listen to Ruth.”

For more on former female executives at Google, watch this Fortune video:

CORRECTION: An earlier version of this article said that Ruth Porat and her investor-relations team have been holding regular “office hours” with Google investors; in fact, those meetings involve analysts, and Porat does not take part in them.

A version of this article appears in the September 15, 2016 issue of Fortune with the headline “Google Gets Disciplined.”

Sign In

Get

Thank you for your interest in licensing Fortune content. Please find information on various licensing contacts below and choose the one that best suits your needs:

  • 1. To license Fortune articles, excerpts, or headlines for republication in various media (including books, eBooks, film, web, newsletters, newspapers, magazines and others), please email syndication@timeinc.com.
  • 2. To license a Fortune cover, order reprint or e-print copies of an article or cover, or license an accolade, please contact PARS International at www.timeincreprints.com.
  • 3. To license text only photocopies of Fortunearticles as print or digital handouts in academic settings, or in academic coursepacks, please contact the Copyright Clearance Center at www.copyright.com