Making Demands on Diversity

Rogers: "We are just not fighting hard enough."

Last fall, John Rogers of Ariel Investments found a convenient forum to discuss the state of diversity in finance. At a SIFMA diversity conference last October, he scolded executives and the rest of the industry about the woeful numbers from under-represented groups in senior roles. "The state of diversity in the industry," he reportedly said, "is appalling."  He added, "Ninety percent of leaders talk a big game, but...we have gone backwards. We are just not fighting hard enough."

Rogers is Ariel Investments' founder and CEO. He, also, happens to be a pioneering African-American in the industry, one who has been a prominent investor and leader in mutual funds for 30 years. Hence, Rogers is no new kid on the block, not an industry novice who just appeared on the scene to make this striking, candid observation.  He has seen dozens of market trends and phenomena, endured more than a few volatile markets, and followed a few decades of diversity patterns. The patterns, he says now, appear to be as unsettling as occasional market collapses.

He stepped into the investment arena in the 1980s, and with sufficient backing and varied contacts courageously started his own mutual-fund company in 1983. Like many minorities who surfaced on Wall Street (or in Chicago, where he has always been headquartered) years ago, Rogers perhaps had high expectations regarding diversity. Perhaps he expected over three decades, minorities would have prominent, visible, and impressive roles in every senior niche in every aspect, perch or segment of finance--in banking, trading, investing, funds management, securities processing, etc. Everywhere.

Three decades would have been ample time for the first wave of large numbers of minorities and women in finance to appear now in substantial numbers in board rooms, corner officers, and trading rooms. Within three decades, blacks, Latinos, Asians and women should have prominent roles within  those hush-hush huddles that determine who gets promoted, who gets paid handsome bonuses, who is tasked on headline-wining deals, and who gets the precious amounts of capital that is allocated for business expansion and investment.

But in 2012-13, he tells eFinancial Careers: "It's unfortunate. One of the most lucrative parts of the economy; it's so dynamic, offering so much wealth, and people of color have not participated."

He adds, "Here in Chicago, at so many funds and banks, you can count the number of black partners on one hand.  That's just the reality of it. It's something that needs to be addressed.  People aren't demanding that industries reflect the societies in which they live."

In perhaps the final chapters of his career, Rogers is recommending that those in positions of influence should call for or take bold action: Make stronger demands, ask questions, and push harder for banks, firms and funds to do something. He recalls an occasion recently where, in working with a bank on a specific negotiation, he asked curtly why he didn't see minority representatives. By the next meeting with the same investment bank, he said, the firm had hired its first black banker.

Why might it be time for bold, aggressive tactics? Why do his words resonate? It's likely frustration and disappointment after so many years of effort. It's the puzzlement about what can be done and where do go from here, especially as major institutions struggle with current business models and announce lay-offs routinely. It's also the squashing of lofty expectations from the 1980s and 1990s, when banks and Wall Street firms opened their doors (with some outside thrusts, of course) to minorities and women and welcomed them to entry-level analyst and associate programs. They hustled to find competent, diverse talent, while at the same time, the talent sought them out.

The expectations then were that after 10-15 years of doing deals, managing portfolios, teams and large client relationships, trading large sums (in the tens of millions), doing research, making sales calls, overseeing complex financial models and advising on investments, the vast wave of minorities would now be running operations, sectors, business segments, subsidiaries in Europe or Asia, or much of the firm itself.  They would be the ones with significant roles in deciding how to restructure a large banking unit, deciding whether to acquire other funds or banks, or deciding where to invest billions of dollars of capital over the next few years.

Granted, there are some minority and women bankers in such roles. And some have risen to the top echelon--either leading the institution (American Express or Merrill Lynch, e.g.) or leading an entire sector (investment banking at Citi or Credit Suisse, e.g.). (Women have previously held the CFO slots at Citi, Morgan Stanley, Lehman, and JPMorgan Chase and chief risk roles at Lehman and BoA.) But expectations had been much higher long ago, because many thought the hardest part about Wall Street was simply getting through the door.

In ensuing years and even today, getting into a lucrative Wall Street spot is still complex, agonizing and difficult. Yet retention and promotion to the top rungs remain even more complex, agonizing and difficult.

Diversity initiatives, retention efforts, networking, and mentoring programs sometimes work. They pave the way for opportunity, provide support and encouragement, and help instill confidence in those who sometimes shrug and want to give up.  Rogers now suggests that all these efforts, and more, need to be capped off with strong demands.

Many institutions nowadays are struggling with reorganizations and uncertainty about reform, but with improved market conditions, they don't have the excuse of having to fight for survival while the financial system is about to collapse.  To their credit, most major financial institutions devote enormous amounts of time, funds and priorities to diversity. And they support internal "affinity" programs to provide career support for women and professionals of color. On the other hand, private-equity firms, financial sponsors, hedge funds  and venture-capital firms, often indifferent about such initiatives, operate as if it were the 1970s.


The pipeline continues to dwindle at mid-levels, as senior associates or junior vice presidents, including women and minorities, become discouraged about senior opportunities or pathways to managing director or become more demoralized, disenchanted, marginalized, or "plain ol' tired" of figuring out how to get to that top echelon. Many depart before they reach their fifth anniversary in the firm.

Thus, throughout the year, when institutions explore the candidates eligible for promotion to the top ranks, many women and minorities have already opted out or the few who remain are not well known to many or don't want to expend the enormous emotional energy to fight the fight.

Rogers suggests institutions and funds--big and small and in all facets of the industry--need to go beyond the placid endorsement of programs. They need a swift kick sometimes in the rear to be reminded that all can do better. All must do better.

Tracy Williams


See also:

CFN: Affinity Groups at Major Institutions, 2011
CFN: Venture Capital and Diversity, 2011
CFN:  Diversity Update, 2011
CFN:  Diversity:  Staying on the Front Seat, 2009

Today's "Bulge Brackets"

Who comprises the Bulge Brackets of 2013?

"Bulge brackets" in investment banking was once an acclaimed list of investment banks that dominated most of the activity in the industry--from staid, conventional bond underwriting to mergers-and-acquisition advice to flamboyant IPOs.  "Bulge bracket" signaled dominance and prestige. It implied a bank was a major player. Statistics and market share determined who made the list or not, and it was often a moniker awarded to banks that finished in the top five in most finance categories.

Say "bulge bracket" and those who trade and do deals and those who follow the industry think immediately of Goldman Sachs and Morgan Stanley.  Just a few years ago, Lehman Brothers and Merrill Lynch were "bulge bracket" mainstays.  Go back decades, and banks such as Salomon Brothers, Drexel Burnham, First Boston, and DLJ might have squirmed their way into a top-5 listing. Often they did, back then. Today, they don't exist or were absorbed into oblivion long ago.

Over the years, MBAs in finance with eyes toward Wall Street often wanted to work at "bulge brackets," because they were movers and shakers, the behemoths that shaped, dominated and influenced corporate and municipal finance. They were the firms that generated the most revenues, carved out the greatest market shares, swept up much of the prestige in doing deals, and--to the delight of MBAs wanting to work there--paid the biggest bonuses.

The term is not used as much today. Some still use it, but the financial media don't flaunt it as much, if it all. That's likely because of (a) the disappearance of some of those storied names in American finance (Salomon and Lehman, e.g.), (b) the dominance of banks with commercial-banking heritages on current lists (JPMorgan, Citi, Bank of America, Deutsche and UBS, e.g.), (c) the continuing blending of traditional investment- and commercial-banking roles, and (d) the ongoing uncertainty of who will survive rapid changes in the industry. 

In the past and even today, if there were one list bankers wanted to dominate, it was often the list of M&A advisers. Mergers and acquisitions in investment banking has often been the heart, soul and core, not because they generated the most revenues, but because M&A bankers have a direct line to CEOs of the client companies.

M&A bankers strive to be the conscience guiding the CEO and board members on corporate strategy, business expansion, new investments and significant acquisitions. They steer CEOs, knowing that CEOs, too, can direct other business to the bank--business including bond underwritings, project finance, new equity offerings, and corporate lending.

The "bulge brackets" in M&A activity today include the same, familiar names (Goldman Sachs and Morgan Stanley). Meanwhile, institutions with traditions in commercial banking or foreign operations have shoved their way to spots near the top. After they decided in the late 1990s to exploit their large capital bases and balance sheets and thanks to loosened regulation, these institutions (the JPMorgans and Citis) earned lead roles in underwriting activity (especially in bonds and loans) and found a back door into strategic M&A. It also helped, too, when they raided other investment banks for top talent or acquired other established investment banks to propel them through M&A doors. 

In 2012, Goldman Sachs and Morgan Stanley were the top two M&A banks (according to Thomson Reuters), based on total deal value.  Not a surprise.  JPMorgan and Citi rounded out the top 5. Also not a surprise.  Barclays emerged as no. 3--a surprise leap, spurred mostly by a surge of activity in the U.S.  The M&A unit at Barclays, remember, includes bankers with old Lehman ties after Barclays acquired Lehman's U.S. broker/dealer during the financial crisis, 2008.

At Bank of America, its Merrill Lynch unit seems not to have had a similar influence--at least in M&A.  BoA slipped to 8th in recent lists.

Some juggling and repositioning should continue into 2013, because all of the above are scratching their heads figuring out the impact of regulation and straining to squeeze more revenue out of an uncertain business model. Even this week, Morgan Stanley hinted that it needed reduce the scale of its fixed-income unit.

All of the above, as well as Credit Suisse, Deutsche, and UBS (three more names also in the top 10), are major financial institutions, subject to tough capital and liquidity reforms called for by Basel III and Dodd-Frank. Hence, in 2013, all activities in investment banking--from trading to underwriting and strategic advisory--are on the table, subject to revamping if necessary to reach return-on-capital targets.

UBS is in a peculiar place. It claims to be doing now what other banks will need to do over the next two years--withdrawing from any investment-banking activity it can't rationalize. Nonetheless, in 2012, it ranked as a major investment bank--at least based on league tables. It placed 9th in M&A activity--garnering a notable share of deals, especially in Asia.  In late 2012, it made prominent announcements about vast reductions in investment-banking staff--especially in fixed-income markets.

It may still choose to support its mergers team, because M&A requires less capital and hardly needs use of the balance sheet. But trends today suggest that being big in all other investment banking units (including corporate lending, mezzanine financing, bond underwriting) helps drive M&A--not necessarily the other way around.

Meanwhile, don't discount the "boutiques."  They lack capital. They can't swing for the fences with big balance sheets, nor can they provide bridge loans or mezzanine financing to clench deals or get them done quickly. (Lazard and Evercore rank in the top 13 among M&A advisers.) Their bankers are the ones who whisper to CEOs they do deals without the blatant conflicts of interests the "bulge brackets" often have.

And just as important, because they are organized in simple structures without trading arms, lending units, and armies of industry teams, "boutiques" are not subject to the vast amounts of regulation, reform and re-engineering "bulge brackets" will encounter this year and the year after and the year after that.

Tracy Williams

See also:

CFN:  Morgan Stanley: Can It Please Analysts? 2012
CFN:  UBS Throws in the IB Flag, 2012
CFN:  Goldman Sachs: How Does It Do It? 2010
CFN:  Banking Boutiques: What Are the Advantages? 2009