Wednesday, August 25, 2010

Consortium MBA's: Back to School

In a matter of days, Consortium students and MBA's across the country return to campus. There is no reprieve or period of easing into the intense environment. Students hit the ground running the first day. First-year students learn right away that recruiting and the grinding effort to secure the internship they dreamed about starts the minute they register for core courses.
Consortium second-year students return to campus after a productive summer of internships. Many earned offers of full-time employment when they graduate. In finance, Consortium interns earned full-time offers at such places as JPMorgan Chase and Barclays Capital.
Indiana-Kelley's classes have started already. First-year students have gone through orientation, and Indiana has introduced a new program to make sure its students will be ready when banks and corporations come to Bloomington. The new program, called Me, Inc., aims to advise students on career selections, strategies and preparation and coach them on recruiting techniques, interviewing and self-branding. Hence, students are counseled before the race gets going.
No doubt, other business schools will observe and replicate Kelley's program, if they don't have a similar program in place already.
A return to campus shifts the focus of the b-school experience back to courses, classes, classmates, professors, and deans. And it reminds all how much the experience has evolved over the decades. Business schools today are significantly different from the way they were in the mid-1980's, or even the 1990's.
The differences?
1. Recruiting is now a full-time job for first-year students. Long ago, students started worrying about internships in early January. They spent much the fall immersed in accounting, finance and marketing and didn't have to develop strategies, attend corporate presentations, prepare for informational interviews, and do what they can to get on interviewers "A" lists.
Today, students are more perceptive, aggressive, and better coached about what they need to do to get the right offer.
2. Business schools today are attentive to rankings and popular opinion about their roles, purpose, and value. They've step out beyond their academic niches and are committed to making themselves continually relevant.
They pay attention to their constituencies: students, recruiters, and corporate donors. If those constituencies make recommendations to improve, they consider them and deploy new programs, courses, campuses, and experiences as soon as funds permit them to do so.
3. B-schools today pay attention to matters and skills beyond the old-fashioned case studies or the legendary finance and accounting texts. They focus more on ethics, conflicts, organization dynamics, communications, branding, teamwork, partnerships and other soft skills. They imbed these values in all aspect of instruction, even if they know they may not always do so successfully.
B-schools also prefer and encourage students to be engaged, active and collegial.
4. B-schools today have pushed hard to emphasize global business, foreign cultures, and opportunities in other economies around the world. They don't merely teach it on campus; they facilitate experiences in foreign countries: e.g., semesters abroad, spring-break trips to Tanzania or China, internships in Peru, Dubai or Indonesia, or ties to institutes on emerging markets.
5. Perhaps more than some corporate environments, b-schools are more appreciative and committed to diversity. They trip over themselves to ensure that all groups are represented, that the student body has significant representation from internationals, women, people of color, and people of many interests, career aims, and past experiences.
They know, too, diversity helps attract top students and professors and fosters creative ideas and exciting discussion about global business.
6. Today, students have different long-term career strategies. Most know it's no longer about the 15-20-year climb up the corporate ladder. Long ago, an MBA graduate might happily join a Fortune 500 firm as a financial analyst and happily take each step up the rung that gets him or her closer to the CFO's office.
Students now know they can't rely on that kind of career plan, even if they want it. That Fortune 500 firm today will likely reinvent itself many times in the next decade, because of mergers, new products, acquisitions, expansions, or (sorry to say) bankruptcy, restructuring, or product obsolescence.
Today, students know they must focus on long-term networks, contacts, transitions, preparing for changes and downturns, reinventing themselves or ensuring the learning curve maintains a positive slope.
Similarities? Some things, however, haven't changed or may not ever.
1. Accounting, finance, marketing, capital markets, operations research, and policy have always been mandatory core courses and--in some form or another--will continue to be so. Within the colorful, comprehensive MBA experience, b-schools understand they have to tend to the basics, the canon of business instruction.
2. Investment banks and consulting firms, years ago, were the top choices among graduates at top schools. Commercial banks, advertising firms, manufacturing and consumer-products companies followed behind. To a certain extent, they are all still popular choices.
But today there are numerous other opportunities that weren't readily apparent years ago: technology firms, Internet start-up companies, entrepreneurship, hedge funds, venture capital, private equity, non-profits, and whatever might be the next new thing. Students today won't hesitate to look beyond the traditional.
3. In the 1980's through the mid-2000's, compensation was king. Compenation packages counted for much, drove recruiting or attracted students who wouldn't otherwise have headed in that direction. Many headed to investment banking, not because they adored corporate finance, but because of sign-on bonuses and promises of big first-year payouts.
Compensation still counts for much, because MBA students look for a return on their school investment. However, most now add another important variable: work-life balance. If the balance doesn't make sense, then the compensation might not matter.
4. The media years ago always described MBA students as "conceited" or "entitled" or filled with unusual expecations. The media (including blogs, books, and online sites) still offer the same descriptions.
As they did years ago, that might result from students who, having worked in a suffocating, sometimes overwhelming academic environment, want to apply what they have learned and see a pay-off from their efforts.
Unlike years ago, however, many students don't necessarily harbor visions of becoming a Fortune 1000 CEO in five years. Many aspire to get experience and then consider venturing out to do their own thing in their own ways.
Nothing wrong with that.
Tracy Williams

Monday, August 16, 2010

Mentoring: Still Critical, Still Necessary

How often do you hear these days the phrases "these challenging times" or "tough environment"? Just as we got used to the notion that the financial crisis was receding into history books, we encountered signals of another possible dip and more uncertainty about an economic recovery.

Just as we began to see an upswing in hiring among financial institutions and renewed outlook for opportunities in banking, finance, trading and investing, we started hearing daunting phrases again: tough times, tough environment.

All the more the reason for MBA students and recent graduates, including especially those within the Consortium, to seek out guidance, help, contacts or opportunities from mentors. Relationships with those who have "been there" and "done that" are as critical as ever. Nurturing, maintaining and solidifying those relationships are as important as ever.

This year CFN's steering committee will unveil the mentoring program differently. Last year the program worked well for a few, but not for many. CFN, thus, will focus on finding more optimal pairings between students and experienced professionals. It won't try to form a match-up "on paper" and then expect the relationship to take off.

We learned last year that mentoring relationships worked best when students were matched with someone who had common interests, career paths, objectives, backgrounds and sometimes schools. The common ground is what permitted relationships to progress rapidly.

If a student interested in private wealth management (PWM) were matched with private banker who works at the kind of institution the student aspires to, then it was more likely the student would initiate follow-up meetings and calls. Some mentoring relationships, in fact, do thrive even when the student and mentor have little in common and are able to have honest, in-depth conversation about finance, work, and career paths. And mentor programs shouldn't always be about matching up students with their mirror images.

But we found that with limited time and pressing demands in the classroom and in recruiting, students took more initiative if they knew the mentor could help them meet short-term goals: the internship or the full-time offer.

This year, CFN and the steering committee will facilitate pairings for students who express an interest in having a mentor to work with them in recruiting, career coaching or career strategies, and/or certain finance topics. So we'll ask Consortium students in finance to raise their hands if they desire a mentor and tell us their short- and long-term goals. For those who participate, we'll remind them how mentoring relationships can thrive, even with their mind-boggling schedules. We'll also remind all that relationships should ideally last much longer than their getting the job offer.

CFN will try to pair students with mentors who have excelled in the role before, who are eager to participate and assist, and who are willing to carve out chunks of time to have lunch or coffee with the student, to take the occasional phone call just before the student has a big interview at the big firm, or to seek out other contacts who might help the student.

Last year CFN posted many blogs to help students and mentors launch their relationships and make them work. They are still as relevant as ever; the links are shown below.

Over the past year and especially "in these challenging times," we provide some updated advice on these relationships:

1. Students should know mentors don't always have a quick answer or a safe solution. They won't necessarily have a toolkit to provide the answers to all the tough questions in technical interviews and can't ensure their contacts and networks will make time for students. Sometimes mentors have that quick solution; often they don't.

But mentors can frame a question or guide students on how to reach the objective or find a solution. And they can share their own stories about how they proceeded from business school to Plans A, B, and C or Career Paths 1, 2, or 3.

2. The best relationships are those where the dialogue is two-way, the relationship comfortable. The mentor steers, guides, and offers feedback, insight, and a point of view. Some mentors will even allow students to air out their frustrations (due mostly to lack of time or easy opportunities); the best mentors help students to harness those frustrations and keep confident.

3. Students can do much to keep the relationship going. Some students approach meetings with lists of questions and topics or an agenda. Some actually take notes. That eliminates the awkward moment, as student and mentor try to get to know each other. Some students keep in touch regularly, even if there is little to discuss or if there is no time to meet. Mentors appreciate that. They let the mentor know they value the relationship and want it to grow.

4. Mentors can and do provide contacts and introductions to others. Mentors like to help and provide answers, guidance or helpful hints. When they don't, they don't mind introducing students to other experienced people. Hence, the student starts off with one relationship and might end up with several contacts and ties to others.

5. If a student is paired with someone in a sector he/she hopes to pursue (risk management, research, client management, community development, banking, or corporate-finance treasury), then the mentor can provide information, a different perspective, an honest assessment of work-life balance, and possible deep background on a company's organization, hierarchy and the people who run the show. Consortium students in the past have benefited from mentors who helped them understand the people they will interview with or will work with or for.

In times when it helps to have an edge, one of the easiest ways to gain it is to pair up with mentors and work with them to make the relationship thrive and last for years.

Tracy Williams

What Mentors and Students Focus on in the Second Semester

How Mentors Can Step Up When Recruiting Season Launches

The Important Roles Mentors Can Have with MBA Students

Friday, August 13, 2010

Simmons' Value on Goldman's Board

Ruth Simmons, president of Brown University, earlier this year stepped down from serving on the board of directors at Goldman Sachs--but not quietly.

All indications or evidence suggests she left the board because she decided to reduce her involvement in outside corporate activities. She wasn't pushed out or asked off. Yet while Goldman scrambled to confront the financial crisis and the accompanying storm of bad publicity, some questioned whether she and other academics on boards were sufficiently qualified to assess the market collapse, evaluate tough banking issues, and understand products, risks, businesses, and market structures.

Two weeks ago in a recent article, the New York Times ( summarized the ongoing discussion about academics (namely, university presidents) serving as board members of major corporations. The viewpoints about their involvement were multi-sided, and those in business, finance and academia weighed in.

Many appreciate the objective perspectives of academics, their experiences running complex organizations (universities with many constituencies and multiple missions), and their proven intellect (Ph.d. degrees and well-documented academic achievements). Nonetheless, some contend university presidents don't have the time to devote to corporate board issues or shouldn't allot the time when they must wrestle with more pressing issues on their campuses.

Some don't like the exceptional compensation packages academics receive serving boards and suggest potential conflicts. And some have outright argued that, without years of business and finance experience, they are out of their league in addressing corporate issues that might overwhelm them.

In the Times article, the head of an independent research firm (Nell Minow of the Corporate Library) says Ruth Simmons' presence on the board hurt Goldman. Minow claims Simmons, as a Goldman director, spent too much time on women's and diversity issues and didn't have the background or expertise to cull through financial issues. "That seat could have been held by someone who understood derivatives," she is quoted in the article. "You don't go on a board for networking, seeking contributions, or working for minorities. You go on a board for one purpose--to manage risk for the long-term benefit of the shareholder." (As many know, Simmons is the first African-American president of an Ivy League school.)

This way of thinking diminishes invaluable contributions someone like Simmons made while on the board or could have continued to make, if she had remained on the board. It's this perspective that undermines the courage some firms have in selecting outstanding outsiders (including women and minorities) to serve on boards to participate in all aspects in overseeing a global business.

Here is a rebuttal to the parochial view that only insider finance experts are capable of serving as board members of complex, global financial institutions.

Or rephrased: Why should Goldman be applauded for inviting Simmons to be a board member, if she were able to carve out the time and attention for such a responsibility?

1. Simmons is learned educator and the senior administrator of a major university, a large, complicated organization with many constituencies, challenges, issues and visions. And one with endowment and finances that must be managed as carefully as Goldman manages its capital and revenue streams. She understands organizational structures and issues and could provide insight and best practices on what works and what doesn't.

2. As an accomplished academic (with a doctorate degree), now responsible for the education of thousands of students, Simmons is likely capable of learning and understanding the primary aspects of banking quickly. One shouldn't discount her ability to master new material.

She may not at first have understood products, business lines, capital markets, mezzanine financing, currency swaps, derivatives, hybrid securities, mergers and acquisitions, or trading positions. But she likely has a knack for coming up to speed quickly. She has to do the same in her "day job," when appointing deans in schools, fields or divisions outside of her area of expertise or when assessing all academic departments at Brown--from biology and physics to art history and sociology.

3. Simmons comes from the outside. She would have little or no allegiance to certain people, divisions, or business lines. She would likely ask questions that others might not bother. She would offer a different perspective, a fresh point of view, and steer fellow board members to extract themselves from minutiae and focus on what makes common sense.

In other words, the outsider is more likely to feel comfortable asking, for example, "Why does it make sense to invest $100 million in new insurance derivatives when you can't explain it to me?"

4. Some would argue there is no way she could intelligently decide on numerous complex financial products Goldman offers, trades, manages, or sells--including, say, credit-default swaps, collateralized debt obligations, currency swaps, high-yield debt, total-return swaps, options and futures. No doubt the products are complicated. Often it takes in-depth knowledge of finance, markets and risk to manage related businesses. It takes experience and day-to-day familiarity, too.

That doesn't mean someone like Simmons couldn't understand the basics--the purpose, the business objective, the primary risks, the profit models, the clients, and the counterparties--to make prudent business decisions. In many cases, the products are new to the experienced bankers, too--the result of innovation the past decade or so.

Hence, even senior managers at Goldman, too, must learn, understand and get acquainted with them. The so-called ABX mortgage index and products derived from that didn't exist a decade ago. Almost no MBA graduate before 1995 would have learned about credit-default swaps in a textbook.

Some market observers, in fact, say that near financial collapse was caused, in part, by the unnecessary complexity of products and models and the inability to grasp or appreciate risks. Some products (e.g, "CDO-squared" instruments or synthetic CDO's) were deemed too complex, too unwieldy for experts, Ph.d.'s in finance, or veteran traders.

Going forward, many will assert that if the products can't be explained logically to smart, fast-learning outsiders (like Simmons), then they probably shouldn't be deployed, issued, or sold.

5. If Simmons didn't emphasize diversity, student recruiting, and women, then who would? When senior managers get distracted by other topics and issues, who reminds board members that successful diversity and inclusion aren't sometime activities--initiatives that get attention only when times are good?

And who helps to remind shareholders (and all stakeholders) how it hurts the franchise in the long term if diversity gets shoved aside if short-term priorities are focused entirely on maximizing current returns?

Simmons was likely the voice in the room who reminds the board to be fair and inclusive in the hiring of talent, in managing director promotions and in overall recruiting. (She has certainly be cited for pushing women's initiatives during her Goldman stint.) She may have been the voice that reminded all a market slowdown isn't an excuse to call time-out on diversity initiatives.

Those who argue that university presidents have enough on their hands and shouldn't accept board seats have a point, if presidents have taken on too many. That would, however, apply to any CEO who sits on perhaps more than three or four boards while trying to focus on his/her own global business. If those from academia manage their invitations to a handful, then they should be welcomed to the board table.

Instead of criticizing Simmons, many should have tried to convince her to remain as a director.

Tracy Williams

Friday, August 6, 2010

The Quants: In Search of the "Truth"

The Quants, the new book by Wall Street Journal reporter Scott Patterson, comes amidst the barrage of books attempting to dissect the crisis. Patterson focuses partial blame on a cadre of hedge-fund managers, Ph.d. types who over the past two decades developed well-known quantitative-trading methods.

They happen also to frequent the same social circles, distract each other by playing each other in high-stakes poker matches, and grew up and learned quantitative finance from some of the same professors and mentors.

Patterson provides a soft argument that these groups of traders (mathematical and computer experts with degrees in finance, economics or even physics) helped contribute to the financial crisis. He doesn't, however, provide a detailed proof--the kind that they (the Quants themselves) would appreciate if presented with polished, mathematical logic.

So don't read this book if you wish to (a) learn as much as possible about quantitative trading methods, (b) understand the direct links between some well-known finance theory (efficient markets, Black-Scholes options models, etc.) actual market behavior and (c) tap into the trading models and secrets that helped many of them make whopping amounts of money before the crisis.

The book is not a how-to or a thorough analysis of how exquisite financial models went awry. But the book is not necessarily a waste of time.

It's more a dissection of the cast of characters who were significant trading participants during the market collapse in 2008-09. It's almost up to the reader to determine whether the "characters" contributed to the collapse, took advantage of the collapse, or were victims of their own forms of market trading, trading based not on gut hunches and hubris, but on models, theories and black boxes. Patterson refers often to the models' recurring search for the "truth" in how markets are supposed to behave.

Hence, Patterson summarizes a few of the theories behind the models without scaring off the non-MBA or non-Ph.d. reader. He pays more attention to the hedge-fund traders' emotional roller-coasters, their innate drive to get models to present the "truth" correctly, and their stubborn confidence and devotion to their black boxes. He also describes their boldness and courage to take risks, tack on leverage, and stick with their models even when markets tell them they might be wrong.

Among the countless hedge-fund managers and quant types on Wall Street or in Greenwich, Connecticut, Patterson focuses on a few: Notably, Peter Muller at Morgan Stanley, Ken Griffin at Citadel, Cliff Asness at AQR, and Boaz Weinstein at Deutsche Bank. He shows how they are connected in many ways. They meet up in the same Poker-playing circles. They had some of the same professors at University of Chicago. And they watch, study, and follow study each other and sometimes learn from others.

In the book, we see less about how Griffin at Citadel grew obnoxiously rich from trading convertible bonds, more about how he was a hot-tempered, demanding, sometimes near-abusive manager of a fund that went through a near meltdown during the crisis.

We see less about how Asness at AQR had been a master at statistical-arbitrage trading, more about how he suffered during the 2008 collapse, going through episodes of destroying desktop computers or isolating himself in his office trying to understand why markets didn't behave they way he said they should or would.

Thus, the book is more a summary of how primary players in hedge funds battled their way through the crisis. Years from now, the book won't stand out among the dozens of crisis tales recently published. It can be regarded as a chronicle of survival from the vantage point of a handful of highly regarded quants.

Tracy Williams