Goldman Sachs and Work-Life Balance

Goldman Sachs announced this week that it had instituted ways to improve the work experience of analysts (in its BA program) and reduce the number of hours they work each week. It's the lore of investment banking to hear stories of analysts and MBA associates, too, who work long hours that stretch through the weekend and through holidays and vacation time.

Goldman acknowledges that it is missing out on some top talent, when recruits have selected other finance jobs or industries because of work-life-balance issues. Talented BA's and MBA's will express an interest in corporate finance, will have the aptitude and drive to work on deals and with important clients, but, as Goldman sees it, they back out and accept offers elsewhere. And they may whisper to Goldman and other major banks that it wasn't about the compensation.  Thus, they choose pathways that take them to the shorter hours and better lifestyles offered by hedge funds, smaller boutique firms, and the finance or strategy departments of non-financial companies.

Goldman, for its part, will discourage analysts from working weekends.

Big banks have tried to address these issues over the past 13-15 years, going back to the times when banks risked losing talent to dot-com opportunities. But the slope is slippery. They implement programs and try to change the culture. They make promises to recruits and junior bankers.

Yet in the trenches, old managerial habits surface, and analysts and MBA associates are pushed to extremes to help in deals, to do extensive modeling and research and to participate in elaborate client pitches. No matter how hard banks try to tweak and twist the work culture, mid-level bankers face unbearable pressures to win deal mandates, generate revenues, manage risks and comply with new regulation--without regard to firm rules about working weekends or until midnight. For some middle and senior bankers, there is a little bit of "because I did it, they ought to, too."

Often the messages of improving work experiences, coming from senior managers far removed from deals and clients, are lost in execution or not enforced fairly or properly. The deal, the pitch and the demands of the client becomes the modus operandi.

Still, because this is Goldman, the industry will watch how this unfurls. Goldman has said that, if necessary, it will hire more analysts to compensate for work not getting done during weekends.

The reports, at least what has come out, don't address work-life issues for MBA associates. Therefore, although the firm likely wants to improve work experiences for the older group, it wasn't ready to say they (the associates) can have all weekends off, too.

Tracy Williams

See also:

CFN:  Delicate Balance:  Long Hours and Personal Lives, 2010
CFN:  Is I-Banking Still Hot? 2011
CFN:  Summer-Internship Experiences, 2010

Getting Pushed Backed, While "Leaning In"

Applicable to all under-represented groups?

So the topic that has made a torrent splash in the early weeks of 2013 is a new catch-phrase:  "Lean In," taken, of course, from Facebook COO's Sheryl Sandberg's new book of the same name. The book raced to the top of best-seller lists. The subject--how women can push (or propel?) themselves into the top echelons of business--is relevant. The advice and guidance are useful, although Sandberg acknowledges there are no quick fixes, no one special way to progress along the path, and certainly no assurances that every woman who "leans in" will one day find herself chair of the board.

Nonetheless, Sandberg determined it was time to put the issue back on the table and force companies and business leaders to assess where we are.  She advises women to seize control of their destinies, bang on the door and avoid waiting for it to open.

So next question. Are her advice and guidance relevant to other under-represented segments (URM) in business--Asians, Latinos and blacks? Does her message, including her instructions and urgings, apply to minority professionals? What happens when members of those groups dare to "lean in," ask for what they want, aspire to become senior business leaders and push for opportunity, promotions and adequate compensation? What happens when they "lean in," assert themselves, but then get pushed back, get pummeled or--even worse--outright ignored?  What happens if they are pushed back for not being patient or for being too vocal, too ironclad specific about what they seek in the next 10 years?

Let's now narrow this to minority professionals in financial services.  What happens if those from  URM, who thrive in, say, corporate finance, banking, trading, funds management, or equity research lean in and get pushed back? Get punched and knocked down in their efforts to seize a seat at the leadership table?

Career paths in finance are often rough, brutal--marked by periods of overwhelming workloads, evolving deadlines, demanding clients, mountainous risks, complex deals, blockbuster trades, tough decisions, and severe competition from other firms and from the colleague down the corridor. Many associates or vice presidents are aware it takes more than superior technical skills to get promoted, be rated highly, and win hard-fought pieces of the bonus pie. It takes stamina, perseverance, contacts, mentors, a thick skin, and bits of chance (lucky markets, lucky opportunities, and being in the right group or on the right team in good times).

So how do under-represented minorities in finance put themselves in settings where they can--more often than not--be in the right place in pivotal career moments?  How do they "lean in" to make sure they contribute to important client meetings, deals and projects--the deals and projects that get people noticed and put them on go-to lists of those who get to do bigger deals, manage bigger projects and oversee larger clients? 

Many minority professionals in finance and consulting already know the game; they have already seized half of it by enduring grueling recruiting processes and have earned treasured spots at firms like Goldman Sachs, McKinsey, Morgan Stanley or any of the notable private-equity firms, investment managers or hedge funds. Like many women in the same roles, they understand what it takes "lean in." They plotted ways to gain entrance into top schools.  They managed rigorous course loads in business schools and successfully navigated through numbing rounds of interviews.  They know what it takes to be aggressive, stand out, and grab opportunity when the doors open ever so slightly and briefly. 


Those who survive the pressures of doing deals, booking big trades, making investment decisions and meeting budget "lean in" in their roles of banker, trader, analyst, or researcher. They raise their hands to ask for plumb assignments, request to be put on innovative deals, and volunteer for special overseas roles. Always accessible and committed, they give up weekends, holidays and weekday evenings.

After a few years, they know it is critical to be on the inside of strategy sessions, senior management presentations, and any gathering to discuss ways to boost revenues or introduce new products and services.They find ways to nudge inside the doors where the biggest decisions are made.

But as they "lean in" and make exhausting commitments to the firm, the client, the deal, the portfolio and the business, many have not adroitly figured out what to do when they get "pushed back." Getting pushed back occurs more frequently than they expected. Often the push-back occurs for subjective, unfair reasons. Sometimes the push-back is blind-sided gesture on the part of a manager, colleague or management team.

Getting pushed back too frequently for inexplicable reasons leads to discouragement. It triggers floods of emotions and self-reflection:  What did I do wrong? What can I do to alter their perceptions of me? What more can I do to earn visible assignments or prove myself in a bigger role with significant responsibility? Why do they not recognize me when I raise my hand, make noise, stomp my feet and share my ideas for new products, clients and revenue growth?

Sometimes after such self-reflection, they find ways to rebound. Some learn the art of bouncing back and conjure the strength to rebound not once, but time and again. They take a different angle or approach, when they "lean in."  They respond to feedback. They return with an even better project idea, finance model, or client tactic. They re-commit to the team, deal, or firm. They find other mentors to toot their horns or help with a career strategy.

Unfortunately, getting pushed back too often leads to bewilderment and loss of energy and enthusiasm. Eventually it leads talented under-represented minorities (and women) to withdraw or recede while still on the job and ultimately to resign from the job itself. Bouncing back after leaning in and getting pushed back over and over becomes too draining, too stressful. 

How to bounce back from the push-back is usually the kind of guidance many mid-level finance professionals from under-represented groups (including women) crave:

When senior managers compose the deal team that will work on the billion-dollar underwriting for, yes, Sandberg's Facebook, how should they barge their way onto the team? When the team is being composed to advise Google, Eli Lily or John Deere on its next major acquisition, how do they ensure they are selected?

When a sector leader selects someone to lead a business group in London, Brazil or Tokyo, how do they win such a coveted assignment? When the institution rolls out a new product to a new client group in a different part of the country, how do they make sure they have a fair shot at the opportunity to lead the product campaign?

When they do extensive research, exquisite financial modeling or insightful analysis and come up with novel ways to assist a client or structure a financing, how do they ensure their voices are not silenced and their ideas not stolen?

As year-end approaches, when they review their accomplishments and contributions, how do they ensure in evaluation season their rankings or ratings won't slip, because they don't have champions or advocates on their behalf or because others diminish their contributions?

There is no formulaic solution to handle the "push-back."  Much depends on the environment, the firm culture, the immediate surroundings, management hierarchy and the financial state of the institution. Much also depends on personal goals and priorities (something Sandberg's book examines from cover to cover).  In all cases, it helps to reassess a situation, review those personal priorities, maintain confidence, and recommit to what is important. In some cases, it even helps to "lean on" others more experienced (not necessarily "lean in") who have traversed the same corporate routes and endured similar push-backs and setbacks.

Motivated and talented minorities and women lean in continually--every day, throughout the year, in every transaction, trade, client session, or discussion of risks, revenues, investments and new products.  They want to understand the best ways to thwart the "push-back." And they want encouragement and energy to rebound one more time with confidence that all the effort has a chance to pay off.

Tracy Williams

See also:

CFN:  Making Demands on Diversity, 2013
CFN:  Venture Capital Diversity Update, 2011
CFN:  MBA Diversity: A Constant Effort to Catch Up, 2012
CFN:  How Mentors Can Help, 2009
CFN:  Mentors:  Still Critical and Necessary, 2010
CFN:  Affinity Groups, 2011

What's the Word from Buffett in 2013?

Buffett's Letter:  Corporate Finance 101

How often have we heard investors and equity analysts say they wish they had the Buffett magic touch? That's Warren Buffett, arguably considered the best, most successful and perhaps most patient investor of all time?  How often have we heard people wonder what special analytical skills Buffett possesses? What is that something (beyond patience and wisdom from experience) he has that myriad others don't have?

The story of Buffett's investment expertise has been told often. Buffett the investment expert operates via the investment vehicle Berkshire Hathaway, Inc.  He has been the investing world's best-known value investor and relies, as he did decades ago, on old-fashioned, traditional investment analysis, the same tools, principles and techniques he picked up when he first encountered the conventions of Graham-Dodd analysis in school. Buffett studied Graham-Dodd principles (thoroughly explained in the 1940 book Security Analysis by David Dodd and Benjamin Graham).

One way to understand Buffett's investment philosophy--his thinking, his approach, his decision-making, his proclivities, his worries, and his management of risk, cash flow and liquidity--is by digesting his annual letter to shareholders. (See 2013 Letter.) Many in the industry look forward to his annual report in the way some look forward to a holiday in the Hamptons.

They count the days until March, and they  guess at what topic he will pontificate on in any given year. Recall Buffett one year, expressing disappointment in the volatility of derivatives, called them "weapons of mass destruction," although he has since employed derivatives in his business operation to a modest extent.

The letter is not a sugar-coated rambling on the performance of business divisions. It's a thoughtful argument in support of decisions the company made and will make to enhance long-term shareholder value--with special emphasis on long-term.

In any given year, the letter explains his philosophy, approach, technique, financial model, and all important decisions. The letter also evaluates bad decisions and lessons learned.  Students and even old-time professionals in finance who read the letter probably learn as much about applied corporate finance and investment management than from any other current source.

Buffett writes the letter in a crisp, down-home style--with bits of humor and little flamboyance. He claims he wants to reach the moms and pops of investing, although it helps to have had a course or two in accounting, some familiarity with corporate-finance principles, and an understanding of economics. Sometimes when the business scenario he describes is complex, it helps to have an MBA.  Still, Buffett does his best to simplify every investment situation he describes, reviews or analyzes and simplify concepts of shareholder value.

Note, too, how Buffett doesn't resort to fads and gimmicks in investing. Berkshire's portfolio includes companies in the following industries:  newspapers, railroads, insurance, and community banks.  He hardly focuses on the latest technology start-up venture, probably because he is attracted to experienced management and proven track records. His letter often attributes the success in some investments to sound, shrewd management of existing operations.

So what was on Buffett's mind this year, when the letter appeared this month?

First, in 2013, he delivered no shock-the-world message, no headline-blazing assessment of the state of capitalism, and no plea to high-frequency traders to stay clear of equity markets. He might have used his forum to do so, but didn't see a need this year.

He offered calming advice on stock investing and explored a few corporate-finance topics in depth, topics that usually get deeper attention and appreciation in an intermediate MBA finance course. Yet he presents his cases in simple, clear language.

What could be more direct than for him to say, as he did this year, that if one invested in a portfolio of stocks at the beginning of the 20th century, he would have generated a return of 17,320% by the year 2000? The comment reflects his confidence and faith in equity markets and his boundless optimism--that one who invested in 1900 was still around in 2000 to reap returns. 

Intrinsic Value

As a prominent value investor, Buffett devotes much space to the concept of "intrinsic value" of business enterprises--whether it's his own Berkshire corporation or the numerous businesses he manages or is considering acquiring.

"Intrinsic value" implies a lot and may mean different things to different investors.  "Intrinsic value" is fundamentally the real value of a business based on expected, sustainable cash flow from operations, based on the value of certain assets, and based on the ability to manage those operations wisely, efficiently, and prudently and invest in their growth.

Buffett explained once again this year that he assesses performance of business lines (and Berkshire as a whole) by evaluating the percentage change in "intrinsic value" vs. percentage changes in the S&P stock index. Investors in Berkshire have an alternative. They can invest in the S&P index or in Berkshire. And he wants them to have a reason to prefer Berkshire over a stock index.

In the absence of a pure computation of intrinsic value, Buffett reminds his readers that he uses "book value" as a proxy for deriving intrinsic value, a grossly under-stated approximation at best. Percentage change in tangible book value is as best as possible a good approximation of percentage change in intrinsic value.

The Insurance Model

This year's letter offers an excellent explanation of the insurance-industry business model. Buffett explains the model as if the industry didn't exist and is starting from scratch.  He rationalizes the insurance company as a behemoth asset manager--not necessarily a risk manager generating premiums and paying out losses.  He shows how profitability dynamics depend on the precision art of pricing premiums vs. risks and the probability of losses.

Intangible Assets

Accounting gurus who gush over discussions of intangible assets (goodwill, e.g.) will fall all over Buffett's 2013 discussions of intangible assets.  He explains how they arise in Berkshire's businesses. He even explains quirks in accounting rules that permit strange, unexpected amortization (expensing) of these assets (which has impact on reported earnings in some subsidiaries). He doesn't indict accounting principles or experts, but provides warnings about how intangibles can distort what might be the true, intrinsic value of a business enterprise.

Newspapers

In an industry that has been declining so fast for so long that nobody disputes the trend, Buffett has decided to invest in newspapers. His letter explains why newspapers will thrive in certain small communities, how they fill a niche in covering local news better than television and the Internet do, and how his portfolio of newspaper ventures will successfully combine online readers with those who will still pay for a copy at the newsstand.


Derivatives

In recent years, since he remarked on derivatives as "weapons of mass destruction," Buffett and Berkshire have warmed up to derivatives, if they are used as risk-management tools and not as arcane, volatile instruments of speculation.  Berkshire inherited derivatives positions in some of its recent acquisitions, and the company has had to manage those exposures. In the latest letter, Buffett acknowledges how derivatives can be used properly to manage financial risk and will be used in the Berkshire organization for that purpose. Other positions will be wound down.


Dividends and Stock Repurchases

Berkshire has a majority stake in numerous companies and has large positions in the stocks of such companies as American Express, IBM, Coca-Cola and Wells Fargo.  It relies on and appreciates the dividends paid out from those stakes. Yet Berkshire and Buffett don't pay a dividend, even when it has amassed substantial amounts of cash.  Buffett had some explaining to do, and he takes delight in having the opportunity to do so. Foremost, he is always on the prowl of using cash on hand to find the next big acquisition, the next "elephant," as he terms it.

He, therefore, goes through a step-by-step example showing when it's appropriate to pay a dividend, when it's appropriate to buy back shares, and when it's right to hoard cash and reinvest in or acquire business operations.  He all but declares that Berkshire will (a) not pay a dividend soon, (b) always consider stock repurchases if, by his calculations, the market under-values Berkshire stock, (c) always lean toward the view that he can reinvest cash in ways better than what the shareholder can do, and (d) will never issue new shares to make acquisitions.

To his credit, he makes the declaration, and then he explains it.  His parenthetical statements on dividends and stock repurchases might have been his under-stated response to the current controversies at Apple, Inc., where major shareholders are currently bickering over what that company should do with billions of dollars of cash it has on hand.

And to his credit, Buffett always reminds his readers he could be wrong, even if he hasn't been most of the time.

Tracy Williams

See also:

CFN: Apple's Stash of Cash, 2012
CFN:  The MBA and the CFA, 2010
CFN:  The Shareholder's Letter at Financial Institutions, 2010
CFN:  Jamie Dimon's Letter to Shareholders at JPMorgan Chase, 2011

Where Do You Want to Work in 2013?

Lists can be amusing. Sometimes they might be taken seriously.  Magazine and media companies like to produce them--even if they are flawed or biased, because they sell thousands of copies of issues or generate thousands of Internet clicks. They spawn discussion and banter and get people talking. Some lists should be shrugged off and dismissed. Some are worth examining, because they might offer helpful information about the topic being ranked.

Employees like good pay, good benefits and, yes, fitness centers

Fortune Magazine compiles many lists from year to year. One recent list in its latest issue is its "Best 100 Companies to Work For." To believe in the list and to ensure it's credible and useful, you must believe in its criteria. You must be assured that Fortune has amassed significant data and measured the information properly. Ask employees why their company is a favorite place to work, and you may get dozens of reasons, including especially compensation, benefits, vacation privileges, opportunities for promotion, and challenging assignments.  Some would contend a favorite place is one that is thriving, doing well and generating upward-trending, consistent stock-market returns.

For all the splash in a big cover story on top companies, Fortune's criteria was relatively simple:

a) Does the company plan to hire in substantial sums in the year ahead?
b) Are employees generally satisfied?
c) Can management be believed?
d) Is there camaraderie among colleagues--genuine collegiality?
e) Is turnover less than 5% annually?
f) Is compensation in the top quartile in the industry?
g) Do benefits apply also to same-sex couples?
h) And, yes, does the company offer free access to on-site fitness centers?

Did it miss anything? Of course, it did. It missed a lot.  It didn't address diversity and inclusion clearly. It didn't factor in long-term, sustained performance (Will the company be around 20 years from now?). And it didn't address whether a company is sufficiently managed and strong enough to survive downturns, market-related disasters, or unforeseen, colossal risks. All these factors might be important to at least a few prospective employees. Yet it knew it couldn't complete a list if it tried to capture too much, especially if the list relied on the completion of thousands of surveys.

Google is no. 1 on the list for the fourth time. BCG, the consulting giant, is in the top 10. Companies like Accenture, DreamWorks, Nordstrom, and Intel also made the top 100. Quite notable is a prominent lack of financial institutions.

Given:

a) what the industry has endured the past several years,
b) the topsy-turvy reorganization most large financial institutions must go through,
c) all the uncertainty financial institutions face in finding a way to generate revenues in the decade ahead,  and
d) the discouraging, frequent announcements of lay-offs and staff reductions...

Given all that, it's not a surprise that most of the best-known financial institutions don't find themselves on Fortune's list.

Strike one:  Many large banks, as we know, are not in aggressive hiring modes.  Check the business headlines weekly to see which ones have decided to rethink, re-situate and reduce staff in institutional trading and investment banking.

Financial institutions engage in some form of hiring every year. There is attrition all the time, and it makes economic sense to hire at entry levels annually to keep pipelines flowing and production efficient (and maintain long-term ties with top business schools). "Production" is efficient when junior bankers can do senior-level work at one-quarter the cost. And if you were to peek more closely, many institutions are indeed adding more staff in compliance, regulatory reporting and risk management. 

But for Fortune's benefit, not many plan to expand substantially on the front lines.   


Strike two:  Because of staff reduction, massive reorganizations and employee-related stress arising from uncertainty and confusion, employee turnover is bound to be more than Fortune's 5% benchmark.  If there is a corporate-banking unit with 100 professionals today, you can be assured a year from now, more than five (and as many 10-20 or more) won't be in the same slot a year later.

Strike three:  The culture, workplace and environment in many financial institutions are not the same as that of a Silicon Valley enterprise.  It's not likely the bank, insurance company or investment manager will support free access to a gym on the premises, free gourmet lunches or freedom to engage in playthings during work hours. Employees may wish for such privileges, and they would benefit from immediate access to a fitness center.  At many banks, still rebounding from the crisis, all that is not a priority.

That's not to say no financial institution made its list.  A few did. Many of the familiar names didn't.

St. Louis-based brokerage firms Edward Jones (No. 8) and Scottrade (53) fared well. And that may be no accident.  Both firms rely on the performance, contributions and production of a large, far-flung network of brokers, consultants and representatives. They obsess in making sure the brokerage force is happy, content and well-compensated.  They ensure the same force has ample administrative, securities-processing, and funding support.  Employees don't work under the haunting, continual threat of being laid off.

Another Midwest-based brokerage firm, Robert W. Baird, with similar privileges and values, appears on the list, too (14). The firm is applauded for rewarding employees with a significant ownership stake.

American Express is one of the few large, well-known financial companies on the list (at 51), despite its own restructuring hurdles the last few years. The company's business faces mammoth challenges in the years to come. It makes the list, nonetheless, because of its remarkable efforts in diversity and because of its widespread support of employee affinity groups (groups with common interests or shared backgrounds).  It also has fitness centers.

In pre-crisis years, on any list where MBAs in finance express where they want to work, Goldman Sachs always found itself at or near the top.  For MBAs from top schools, Goldman offered new associates prestige and compensation. It also offered MBAs a chance to learn and master all the nuances of finance, a chance to thrive in a highly charged environment, a chance to travel to all parts of the world, and a chance to exploit the strengths of the Goldman name to get deals done, make trades, invest on behalf of clients, and finance companies and municipalities.

Post-crisis, Goldman, too, would be vulnerable to the strikes above.  As a "bank holding company," it is re-inventing itself or reshaping itself to contend with regulation and profit-margin struggles.  Yet it squeezes its way onto Fortune's list (93), partly because of a commitment to reward employees exceptionally--via benefits and the resumption of huge payouts every January.  MBAs in finance still want to work there, perhaps for a handful of years, just enough to taste the experience, learn, earn and then move on to the next rung on the career ladder.

Of the Fortune 100, only about 10 are bonafide financial institutions (about half of which are insurance companies). The industry is not in the same turmoil as it was a few years ago. In fact, most have begun to report upward trends in earnings and share prices, while they spruce up balance sheets.

But much jockeying continues.  Much tweaking and twisting of old business models are occurring.  And for now, the maneuvering behind closed doors among the senior ranks, as they adapt to new rules and new markets, comes at the risk of neglecting to make themselves employers of choice. At least that's what Fortune's new list implies.


Tracy Williams

See also:

CFN: The Best Places to Work, 2010
CFN:  The Best Places to Work, 2011
CFN:  Affinity Groups in the Workplace, 2011
CFN:  Time to Make that Move? 2010

Why Was Citi's CEO Asked to Resign?

Citigroup caught everybody off guard this week, when its board announced it had asked for the sudden resignation of CEO Vikram Pandit. Or did it catch anybody off guard? Was this a gesture  investors pushed for?

Was it the right move for the big global financial institution that seemed to have leaped a hurdle to move beyond the darkest days of the financial crisis--back when there were moments when many thought its survival was in jeopardy?

Over the past few years, Pandit and team took appropriate, bold steps to make the behemoth profitable again. They sold assets en masse. They shuffled bad, non-performing, defaulted, bankrupt, and/or foreclosed assets into a special holding company and, little by little, sold off these positions, properties, securities and full operations.  By doing so, it rid itself of spoiled segments and began to polish ongoing core operations.  They downsized in every way possible--in just about every unit, operation, division, and geography. They finally sold its stake in the brokerage joint venture with Morgan Stanley (although at a large loss).

Earnings, too, had improved. In the days before Pandit's exit, Citigroup announced third-quarter income of over $460 million (somewhat misleading because of a handful of accounting adjustments banks are permitted or forced to do) and has boosted its equity capital base to over $185 billion. Returns on its capital base throughout 2012 have hovered between 5-8 percent-not stellar, but much better than the debilitating losses of years ago.

With regulators showing their hands in all aspects of its business and that capital structure, Citi has cooperated, even when it desperately wanted to resume paying a dividend to shareholders. Growing  leaner, it felt comfortable settling in as the third or fourth largest bank in the U.S., below the first-place perch it had held for many years.

Pandit and team had unraveled the mammoth financial-services empire Sandy Weill and his own team constructed throughout the 1990s and early 2000s. Yet the board, under chairman Michael O'Neill, behind the scenes had been huddling to plan a Pandit departure. It appears Pandit had little clue.

Why then would a CEO who followed the marching orders of both government regulators and a corporate board be told his time is up?

Impatience with the stock price is always a reason. Over Pandit's five-year stint, shares of Citi have fallen 80 percent and more, even though share price is up 10-12 percent in 2012.  The market may have appreciated the bank's revival, but perceived that the clean-up, the reengineering, and the resumption of basic banking aren't complete. The market perceived that other thorns or problems might still remain hidden in operations and haven't been resolved, sold off or at least shoved into the Citi Holdings, the special entity that corrals all the "bad assets" and prepares them for sale.

Investors and the board applaud Citi for separating out the bad assets. But the bad assets still reside with Citi and must be maintained, grappled with and funded.  The board may have been pushing for Pandit hard to get rid of them with more urgency and haste--if only to present a new, cleaner, "de-risked," and unrestrained Citi. The bad assets of Citi Holdings remain as a scar on its overall balance sheet and a stinging reminder of the crisis.

Shareholders also seem to covet their dividends.  Banks traditionally have rewarded their owners with a regular, comfortable stream of dividends. Pandit this past year felt financial improvements warranted Citi resuming paying a dividend; however, Citi sparred with regulators, who vetoed the move. Dividend-loving shareholders appear to have blamed Pandit for not making the improvements quickly enough to result in dividends or share repurchases to help give a jolt to the stock price.

Investors and the board, too, are likely peeking at the performance of peers, the other big banks (Goldman Sachs, Wachovia, and JPMorgan Chase, e.g.) that seem to have rebounded far more swiftly. Citi has escaped the starting blocks, but runs several strides behind the others.


Years ago, Pandit arrived at Citi after his stint at Morgan Stanley and after selling his hedge fund to Citi. He rose to become its CEO when previous CEO Charles Prince was pushed out when the public learned about Citi's crashing values of mortgage securities and mortgage-related structures.  Pandit had been a successful fund manager. Re-juggling portfolios of assets, restructuring balance sheets and assessing the values of trading positions summarize Pandit's experiences and skills.

Citi is now at a pivotal point. Shareholders dream of 10-percent returns on capital and new respect in the banking community. And the board appears to have assessed that Pandit lacked expertise and deep experience in the trenches off basic banking:  operations, branches, systems and technology, corporate lending, deposit taking, cash management, and custody. It needed a new leader that knew as much about the profitability of retail branches and the costs of doing money transfers as about valuing derivatives and mortgage securities.

So it tapped Michael Corbat, a long-time Citi banker with broad experiences in sales and trading, wealth management and international operations. In fact, board chairman O'Neill phrased it as something like a different horse for a different course. The board is pronouncing the restructuring phase as over, and it is time for Citi to become what it wants to be--large, omnipresent, global, familiar to all, yet simpler, basic, stable with boring, steady profits, 10-percent returns (at least) and, yes, quarterly dividend payments to owners.

Tracy Williams

See also

CFN:  Richard Parsons and Citi, 2012
CFN:  Morgan Stanley Progress Report, 2012
CFN:  Moody's Downgrades Big Banks, 2012

Forced-Ranking: Does It Hurt the Company?

It doesn't matter the level of experience--analyst, associate, vice president or managing director.  Finance professionals everywhere are haunted when they must schedule performance reviews. They endure them twice a year.  First, a mid-year review takes place in mid-July. It sets the stage for the rest of the year, since year-end reviews flow from the tone set at the July session. In late December and early January, everybody--unless time mismanagement permits some employees to be overlooked or unless the employee has just joined the company--goes through the end-of-year review. The second-year associate has an appraisal session, as well as the experienced sector head. The frenetic, marathon efforts of an entire calendar year are capsulized in one rambling meeting that often peters out after about 45 minutes.

In financial services (at banks, boutiques, insurance companies, asset managers, trading firms, hedge funds and small broker/dealers), it's a way of life.

CFN last year addressed the flaws of performance reviews, the way they are conventionally conducted today. See CFN: The Dreaded Peformance Review, March, 2011. The posting highlighted one expert who called for the end of reviews that rely on rankings and ratings and recommends  different, more meaningful, more frequent evaluations. He criticized harshly the prevalence of the current ranking process--something finance professionals everywhere know well, where senior managers in evaluation committees sit cloistered for a day or two to rank employees (at the same level) from no. 1 to perhaps no. 100. A laborious, exhausting exercise, sometimes marked by bickering, emotions and fatigue. Often a political exercise, but essential, say senior managers, if bonuses will be disbursed on time and promotions granted.

Cut to summer, 2012.  Kurt Eichenwald, a business journalist formerly of The New York Times and now a contributor at Vanity Fair, proposes that it has been the "stack ranking" performance-appraisal system that is one factor that has tarnished the glow at Microsoft.  In the latest issue of Vanity Fair, Eichenwald analyzes why Microsoft, untouchable and revered in the 1990s and 2000s, might have lost its luster in the 2010s.  Its system of evaluating managers is one reason, he writes after a series of interviews with former senior managers.

Just as financial institutions and hedge funds rank bankers and traders from top to bottom twice a year and pay and promote people accordingly, Microsoft insisted employee-managers be rated and ranked annually.  Eichenwald describes excruciating sessions at Microsoft where managers shut doors and battle over who will reside in the top rungs and who will be shoved down to the bottom. Long, heated discussions occur, where managers sometimes make deals with each other about how to shuffle and re-shuffle the rankings. The scenes he describes are replicated all over Wall Street.

That system rewards outstanding performance at elite levels. But what is the lingering, lasting impact of such system on a business' culture? Eichenwald draws a few conclusions:

1.  The process "cripples innovation."  Employees, including senior business managers responsible for large business groups, suffer from having short-term views, a six-months approach to business, since every six months, they worry they will slide up or down the ranking ladder and, in an even shorter term, must do something about it. They manage their rankings ardently, and that effort takes precedent over managing the business through an economic cycle or in the face of tough competition.

2.  The process encourages a culture of "schmoozing and brown-nosing," he is told. Employee-managers are advised to "increase their visibility" among other senior managers (managers who rank) in order to become better known during ranking sessions. Employee-managers spend more time shaping the "buzz" about themselves.

3.  The process encourages employees to avoid working closely with talented people, where their weaknesses are easily exposed.  Often people who work with experts or experienced colleagues learn new skills and material and understand better a process, product, client or marketplace. With mentors working beside them, they have a chance to polish lagging skills and make progress. The system, Eichenwald was told, discourages working with experts, as weaknesses flare and can be readily identified.  Glaring, noticeable weaknesses, in this process, send employees down a shute toward the bottom of rankings.

4.  The process undermines efforts by all to meet corporate, group and personal objectives. Most professionals and employee-managers are asked to perform (or manage) to meet specific objectives. Those who meet objectives--even after encountering obstacles, unforeseen economic events, or other challenges--must still undergo forced rankings. An employee can meet all objectives, but still be ranked in the bottom tier and be subject to, possibly, to no bonus, no raise or even no job. Meeting objectives, Eisenwald says, then becomes "nonsense."

5.  Employees are sometimes not good-faith contributors to teamwork. They are "courteous," he reports what one manager tells him, "while withholding just enough information from colleagues to ensure they didn't get ahead of me in rankings."

He provides a startling example for how a ranking system can be flawed.  Suppose there exists a business-unit team including the following:  Steve Jobs (Apple), Mark Zuckerberg (Facebook), Larry Page (Google), Larry Ellison (Oracle), and Jeff Bezos (Amazon).

In July, each will be reviewed for mid-year appraisals. In December, they will be reviewed and rated for the entire year. But they must be ranked into three categories, regardless of performance, accomplishments, potential, vision, or innovation: one at the top rank, two in the middle, and one at the bottom. The one at the bottom receives no bonus and will be encouraged to leave the company within the next year. Into these buckets, from the list above, who goes where?

How then can the company endorse the process, if ranking forces the company to ask, say, Jeff Bezos to leave--regardless of his accomplishments or the revolutionary visions he may have in product innovation?  Does the company enforce the ranking policy? Or does it revise the system to permit five experts, visionaries, or potent performers to be rated on personal objectives and rewarded appropriately?

Eisenwald concludes from interviews that employees and managers worry less about the next generation of products; they take fewer risks with creative ideas, as they worry more about whether appraisal-committee managers will know them well enough to give them a boost up the ranks.

Microsoft, in the article, acknowledged it is finding ways to revise the flaws in the system.  In financial services, the system is still widespread.

Ideally, the mid-year or year-end review should be about recognizing achievement, highlighting development and articulating clear next steps. And it should be a futuristic discussion about the directions of both the employee and the firm and about what the employee can do to maximize performance, exploit his or her talents and contribute to the firm's long-term strategy.

Some companies and financial institutions argue the current system works, if it permits them to retain top talent.  Some argue they haven't found a better, more efficient way. The system is an easy way to appraise hundreds (or thousands?) of employees. Yet others will say it's plain inertia. Until companies find a better way, employees will often ponder obsessively what they can do in the last quarter of the year to out-shine others who they fear will climb above them in rankings.

And for some, these aren't idle thoughts.


Tracy Williams

See also:
CFN:  What Have You Done For Me Lately? Sept-2011

When Mentoring Relationships Falter

Something often plagues MBA students and many young professionals in finance. Why don't mentoring relationships always work as they were envisioned or designed? Why do mentoring relationships often get off to exciting, hopeful, ambitious starts, but flicker, whimper and die out? Why do they start with promise and then meander into nowhere?

Not all mentoring relationships, we know, falter.  Some thrive. Some lead to life-long relationships and friendships.  Some lead to opportunities, new jobs, promotions and even new careers, activities, and hobbies.  Note the themes of thriving relationships. They suggest something refreshing, new, opportunistic, and different.

But what about those that falter, the life of which oozes out and dwindles to nothing?

What happens when the eager first-year MBA student at Virginia, Emory or Berkeley links up with a principal at a private-equity firm. They meet, greet, exchange business cards and discuss respective backgrounds. They deduce they have much in common--shared backgrounds, shared acquaintances, and shared interests in finance.

There is an intersection, where they bond and which spawns "a relationship."  Because of the bond, the mentor offers an insider's list of suggestions for how the Emory MBA can pursue a career in private equity or venture capital. The mentor visualizes happily the student following in her path. The student expresses his good fortune; he has found the toolkit or treasurer's chest that can lead him to an associate position at Blackstone, Goldman Sachs, Jefferies, Citadel, Kleiner Perkins or Morgan Stanley.

They go their separate ways, exchange e-mail messages of gratitude, arrange a follow-up phone conference call, and then meet for coffee in New York weeks later. All of a sudden, the student detects diminished enthusiasm from the mentor. The mentor, distracted by other worries and pressing demands, is not attentive and even forgets some personal details about the student. The student stumbles, uncertain in how to respond, how to take advantage of the moment, how to push the relationship along, or how to seize the day.

Worse of all, the student hesitates afterward to reach out again to the mentor.  Or (in some cases) the mentor, noticing how unprepared or clumsy the student seemed to have been, is suddenly less interested in "grabbing a cup of coffee" the next time he is in New York.  

Dozens of reasons exist for why some relationships don't work. Time pressures loom large. Students, young professionals, and experienced leaders in the industry all have deadlines, immediate priorities, meetings to attend, and projects to complete.  The values and promises of a mentoring relationship suddenly appear too vague when the student has final exams and the mentor has a billion-dollar deal to execute. Inevitably, the relationship slips to a spot near the bottom of the priority list.

Other times, relationships falter because the student or young professional expects too much too quickly, having planned to exploit the relationship to achieve a concrete objective.  He pursues the relationship because he wants a job, a promotion, a raise, or a transition to a new group. When he realizes the relationship may not lead to quick benefits, no matter how engaged, connected or powerful the mentor is, he loses interest and eagerness. He is less likely to maintain touch, less likely to call or send the occasional e-mail greeting.

The relationship loses its buzz, its special bond, because specific objectives aren't being accomplished. These relationships falter because they are pegged too often to personal objectives.

The best relationships, experienced mentors say, are those where the relationship proceeds on a natural course. Both sides, because they are comfortable, share experiences, opinions, and histories. Both sides, because they are comfortable, offer constructive feedback and enjoy the give and take of fun, fruitful conversation. 

In finance, mentoring relationships continue to be critical--especially in certain industry segments. To get hired in or to advance in private equity, venture capital, hedge funds and boutique investment banking, relationships and ties to experienced people often count more than formal recruiting processes.

Some mentors, of course, are more active, more interested in the relationship, and more successful at it than others. The onus, however, continues to fall on the younger professional to launch the ties, to cultivate and to maintain them. Some mentors complain that students and entry-level professionals make it complex when they often approach them unprepared, always seeking quick solutions and answers.

Still, some mentors know relationships thrive, even when the student isn't always prepared when they meet, partly because the two understand the motives, interests, dreams and styles of each other. Many relationships indeed have concrete benefits, even if they are reached years later. A mentor can provide guidance to a student, who uses it years later as an associate making presentations to clients, handling the pressure of long work hours, or being promoted to Vice President.

CFN, over the past three years, has explored mentoring relationships in finance frequently. Based on experiences from mentors, students and entry-level professionals, the posts below share success stories and provide some guidelines on how to sustain relationships, how to keep conversations and sessions relevant, and vibrant, and how relationships eventually lead to wonderful benefits.

A few relationships will inevitably fall flat, but they don't always have to.

Tracy Williams


See also:

How Mentors Can Help MBA Students

How Mentors Are Invaluable in Recruiting 

Mentors:  Still Critical, Useful, Important

How Affinity Groups Help in Mentoring

Parsons: On to the Next Phase

What's next for Parsons?

After an illustrious business career that spanned decades, Richard Parsons is calling it quits this month. 

He announced he wouldn't pursue re-election as chairman of the board at Citi. (Citi, as many know, has been an important, decades-long supporter of the Consortium and a host at Orientation Programs and Consortium events in New York.)

Has an era ended?  Parsons has been a pioneer in many ways, and he wraps up a career filled with quite a few "African-American" firsts."  He was CEO in the 1980s at Dime Savings Bank, at that time a well-known New York regional bank. He later became CEO at AOL Time Warner in the 2000s, landing right in the middle of turmoil from the cantankerous combination of AOL and Time Warner.   

Few African-American lead or have led major financial institutions, so Parsons' exit from the Wall Street scene is noteworthy.  In 2012, Kenneth Chennaultcontinues to preside over American Express. Stanley O’Neal rose to the top at Merrill, scratching and grinding from investment banker to CFO to CEO, but departed suddenly after an avalanche of mortgage-related losses during the financial crisis.

Was Parsons pushed out at Citi? Was this a behind-the-scenes ploy by current CEO Vikram Pandit to seize more control at Citi after a relatively calm and successful 2011? Did Pandit plot to assert himself now that re-engineering, reorganizing and downsizing at Citi are well under way. Not really.

Years ago, Citi adopted a governance strategy long accepted at European institutions--separating the roles of board chairman and the CEO. In the U.S., the CEO is often the board chairman.  Elsewhere, it's likely the CEO answers to a board chairman who is not involved in daily operations. The board chairman watches over the CEO's shoulders. 

So as Parsons exits, Pandit won't rise to the position of chairman; Michael O'Neill will succeed Parsons. The timing might be optimal.  Citi is restructured, performance has improved, odd businesses have been sold, and now it can gear up for the impact of tough Dodd-Frank legislation. 

For his part, Parsons, 63,  is likely contemplating a life with other activities and projects (his interests in the community and in jazz).  As Citi chairman since 2009, he was in a position that sometimes seems ceremonial. Yet with Citi, like most financial institutions since 2008, under the gun, scrapping desperately to survive the crisis and undergoing soul-searching reviews of its strategy, Parsons' role was likely anything but ceremonial.

In the end, he's had a sparkling, assorted career. He started out long ago as an aide for New York Governor Nelson Rockefeller, rode those coat-tails for a long time, and took advantage of contacts to propel himself up the corporate ladder. He eventually transitioned into corporate life and became Dime Savings' head until it was later sold. Years afterward, he found himself at the top of AOL Time Warner after what was an awkward, questionable merger of AOL and Time Warner. 

Business observers have been neutral about his overall performance throughout his career (measured by gross profits, profitability or percentage increases in share prices). Yet whether at Dime, Time Warner or Citi, he always found himself in fire-fighting roles, where he had to lead companies out of corporate turmoil or shepherd them through complex restructurings. 

Some say he had the knack for being in the right place at the right time. That knack started with his ties to Rockefeller, who got to know him after law school, liked him and tapped him to be an assistant. That relationship jump-started his career.

Being lucky helped, but rising to the occasion helped.  And he demonstrated he could manage a variety of ugly corporate situations in different industries, solve board-level problems, negotiate effectively and bring together groups with different agenda. He was often praised as being conciliatory, comfortable to work with, smooth, and one who understood tough, grinding business issues. 

A classic case of someone who didn't ruffle feathers, who was generally well liked, and was fortunate to have started his career with the best of contacts. One who should be remembered, too, for those pioneering roles. 

Tracy Williams

Bonus Season

It's bonus season at most financial institutions--big or small, behemoth or boutique. At some, payouts were made in December. At others, bonuses are paid in January after a strenuous month of evaluations, rankings and appraisals in December.

For everybody involved, it's not always a comfortable time, especially in the current environment. For perhaps a generation, senior finance professionals got used to receiving the bulk of their compensation in one lump-sum payout in January. A year of doing deals, generating revenues, bringing in fees, managing risks, handling portfolios, selling services, introducing new clients, making presentations, and creating new products traditionally led to that big day of a big payout.

Times are different now. The art, science and politics of compensation are as complicated as ever--because (a) in 2011 business revenues at banks, funds, and firms were volatile and unpredictable and (b) with regulation looming, not many are sure how current business models can justify the old large incentive payouts that became a habit in the 1990s and 2000s.

Every firm, it seems, is struggling to figure out how to do it right. How do you pay top performers at all levels--sufficiently enough to keep them from fleeing to another bank or another industry? How do you rationalize the right payouts in a scenario of dwindling profitability and uncertain revenue trends--when trading revenues will disappear or revenues from deals, clients, and products aren't consistent or "sticky"? And what are the right payouts in the face of a public looking for a scapegoat to blame the financial crisis and recession?

Some institutions will find a way to continue to pay top performers at mid-2000 levels, even while they scale back operations, reduce staff, and withdraw from certain businesses. Others will strive for a fair, consistent bonus strategy at all levels of experience and performance. In other words, everybody must bear the pain of a new era or a new business model.

A few (including boutique firm Greenhill) have announced they will target total firmwide compensation at a specific percentage of net revenues--probably 40-50%.  Bankers and traders must learn to be satisfied within that model. Not the 50-60% levels of the past. If revenues are down, then bonuses will decline to ensure they meet compensation-percentage targets. 

Everybody is watching each other, no doubt. What will UBS do? Bank of America? Or Goldman Sachs, Paribas, Blackstone, or Credit Suisse? Financial institutions have always peeped over their shoulders to determine how "the market" for compensation is faring. (Among bulge brackets, Goldman, it was always thought, set the standard for associates, vice presidents and managing directors.)

What does this mean to recent MBA finance graduates, especially those who are early in their careers, still hoping to remain in finance throughout a career, and perhaps yearning (with illusions?) to remain at the same firm for a long time?

1.  Financial institutions, especially those accustomed to paying professionals bonuses that double or triple (or quadruple!) their base salaries, often say incentive plans are objective and metric-based. The process starts out that way, as senior managers review contributions, accomplishments and progress of individuals.  Further along, however, the process becomes political, subjective, and biased.

Senior managers are instructed to cut bonus pools all of a sudden--sometimes a day or two before scheduled payouts.  Some seniors seek to protect favorites.  Others shift some of the compensation pie to talented people who threaten to leave. Many managers sometimes can't agree on what is outstanding performance or what types of contributions or performances should be rewarded. 

Younger professionals often don't understand the underlying influences of incentive payouts. They won't know the behind-scenes discussions or the last-moment instructions from sector heads to change the rules. The rules are fluid throughout bonus season.

The junior population often agonizes, but shouldn't try to figure out why the compensation game is changing in the middle of the game.  Too much anxiety becomes a distraction from performance--which still counts for much, especially as they build reputations and a "buzz" around them and when promotions are under discussion.

2.  Incentive payments come in assorted packages. They may include a package of cash, restricted stock and/or options.  MBA associates and junior vice presidents seldom, if ever, have a say in the content of payouts. Most prefer up-front cash.  Senior managers, in good times, offer up-front cash to keep talent from deserting. In times of struggle, bank management will have few choices--pay in larger percentages of stock and options, or don't pay any amounts at all.

In times of uncertainty and little leverage, younger professionals should gladly accept grants of stock. Furthermore, in times of uncertainty, there's always that faction that reminds us that having a permanent job and a base salary is the bonus after all.


3. Younger professionals shouldn't jeopardize the possibility of a bonus with tepid, indifferent performance or abhorrent behavior in the few days before scheduled payouts. Sector heads and senior managers sometimes change their minds or look for reasons to take away from Paul to pay Peter. A bad impression in December, because of a rude attitude or sloppy presentation after 11 months of superb performance, has often--more than most know--led to a reduction in pay in January.

4.  One more life lesson. Bonus season, as much as any episode in somebody's career finance, is a smack-in-the-face reminder that sometimes life is fair, and sometimes it isn't.

Tracy Williams

"What Have You Done for Me Lately?"

Remember days of yore--when an MBA in finance accepted an offer from an investment bank, commercial bank, brokerage house, trading firm or insurance company in the spring of second year and thereafter embarked on a long career with one firm, one employer?  Shortly after arriving at the firm, the MBA started a training program or entry position--with the expectations of earning promotions every few years and with sights on becoming a senior manager (at the same firm) at the apex of a productive, memorable career.

In those days, you had the luxury of failing or slipping up in performance (a few times, not often), as long as you showed drive, loyalty, commitment and some promise. Now and then, you could fail to win a deal, could lose a major client, or could report a decline in revenues. You were reprimanded slightly, gently coached, and learned from experience. You were confident you would get a second chance, and you envisioned a career lasting, oh, 15, 20 or more years.

What happened to those days? Times changed. The environment changed.  Competition among financial institutions grew fierce. Regulation loosened some of the rules and guidelines. Commercial banks infringed on the turfs of investment banks. Insurance companies, boutique firms, and hedge funds butted heads among themselves and with bankers. Shareholders, boards of directors and investors, accustomed to 10-15% returns, suddenly sought 20-25% returns, even with dwindling opportunities. They demanded revenue increases, soaring earnings and steady upticks in share prices.

And they demanded it from quarter to quarter every year. From the chairman of the firm to the sector managing director to the vice president in a client unit or on a trading desk all the way to the newly hired MBA only a few months out of Stern, Darden, Haas, or Tuck, the mantra became:  "What have you done for me lately?"

How can and how do MBAs, including those from Consortium schools, confront such daily pressures? How should they and how can they handle a culture where you are only as good as the last deal you've done, the last client you brought to the firm, the last trade you put on the books or the last investment you analyzed and endorsed?

The topsy-turvy environment of 2011 makes matters worse. While financial institutions of all kinds scramble to win business, keep clients and cut costs to remain profitable, uncertainty about markets, global issues in Europe, and a start-stop recovery in the U.S. heightens the pressure. Banks, in particular, still sit in frustrating meetings brainstorming on how to make money with Dodd-Frank and Basel III regulation whipping them from behind. In the midst of all this uncertainty and week-to-week chaos, somebody is always peering over everybody's shoulder to ask: What have you done lately to justify your existence here?

Will this be the norm going forward?  Will this be common practice to manage professional talent? Will bankers, traders, researchers, salespersons and managers be evaluated from quarter to quarter based on their current contributions to earnings (and not based on a long-term value to the firm)? Will employees at financial institutions approach each work day as one to confront threats, hardships and enormous pressures to perform and achieve?

Or when market stability turns, along with some certainty of a sustained recovery, will financial institutions settle down and nurture long-term career paths for those who truly want to be around for a long time? There is risk in not doing so.

In unsettled markets and high-pressure situations (where compensation is too uncertain to offset daily anxiety and turmoil), talented professionals seek solace elsewhere. If the environment is unsatisfying and too threatening, they move on. They flee to smaller firms or more specialized outfits. They contemplate going on their own, setting up their own shops, boutiques or funds. Many bring their clients, strategies, and colleagues with them.

Others shop around for more comfortable roles or environments. If they go to work plastered with  constant rumors of lay-offs or spin-offs of business units they work in or if they are subject to harsh demands to meet extraordinary business targets, they reach out to peer firms. They go where expectations are reasonable and where pressures are tolerable (or compensated for). They go across the street to the "other bank."

Younger professionals and newly minted MBAs may not have networks or contacts to pursue other opportunities yet. Many also want to stay put, because they want to spend the first few years learning and getting experience--in doing deals, in negotiating with clients, in tackling financial models, in managing people and in making tough business decisions.

Yet in an environment where some will tap them on shoulders and ask what have they done lately, it helps to have a survival plan. What can they do?

1.  Keep, maintain and update a personal scorecard of accomplishments, achievements, deals, business wins, and successful projects. Be ready to present and explain it at any time, because, yes, in these times, your value to the firm is always under review.

As others assess your value (whether formally in appraisal meetings or informally in chatter during a coffee break), you want the review to be fair, objective, and up to date.

2.  Understand what your weaknesses are and how they are perceived by others. Develop a short- and long-term plan to address them, and be ready to share the plan with supervisors and mentors. As others evaluate you, they may overlook what might be regarded as a glaring weakness, if they know you have plan to improve.

3.  Always assess "what you bring to the table."  Make sure to the table, you bring something important, useful, possibly money-generating, or valued highly in the short- and long-term. That may be access to clients, people and contacts. It may be specialized knowledge, new ideas, or an astounding understanding of financial models, markets, products, or regulation. For many recent MBA graduates, it may also be an intense, consistent work ethic, a willingness to get the job done no matter the obstacles (and of course during all hours of the night or weekend).

There is no fail-safe response to the question:  What have you done for me lately? Sometimes a 20% increase in revenues won't do. Or winning the mandate from a new client to do a big, headline-garnering deal won't create a buzz among senior managers. Or creating a new product that clients will swarm toward may still be insufficient for those who ask these types of value questions.

But it still helps to be prepared and be ready to present your case.

Tracy Williams

Firm Culture: Could You Work Here?



Dalio of Bridgewater Associates

 Bridgewater Associates is a successful, $90 billion hedge fund, located along the Connecticut corridor where other successful, gargantuan hedge funds have a home base. Ray Dalio, a Harvard Business School graduate, is its founder and leader. The fund's investors include pension funds and university endowments.

Over 1,000 people are employed in a variety of roles.  It recruits those who are tough-skinned, highly motivated and interested in a long-term career at the fund. MBAs in finance would no doubt be attracted to an opportunity there.

Would you want to work there?

Would it be a place where you can find a niche, thrive and be successful? Would you be able to endure hardships and demands to perform well? Would you be able to stomach equity volatility, risks of losses, and virulent market turmoil? And would you be able to perform under pulsating pressure and high expectations?

Bridgewater is also known as a fund that operates based on a set of cult-like principles, written and often updated and revised by founder Dalio.  "The principles" had been rumored and talked about for a long time. Before they were public, former employees, managers and investors mentioned them. They told tales of employees (traders, analysts, and researchers) being subjected to tough, unrelenting, bruising criticism--as required by the principles.

Dalio, perhaps tired of speculation about whether the principles exist or not, eventually decided to post them (all 122 pages) on the firm's website for all to see. (See  BRIDGEWATER-PRINCIPLES) There they are, to be seen and studied by competing funds, prospective employees, and academic experts in business strategy and corporate organizations.

In the world of hedge-fund blogs and chatter, some say Bridgewater is not a culture, but a cult. Others say if the firm is successful (having attracted talent and experience and having survived the financial crisis), then it's not a cult, but an organization whose culture might be replicated by other funds, institutions and organizations. Others who have worked there speak (anonymously) of having had demoralizing experiences or or having endured debilitating asssessments of their work.

Dalio is unapologetic. "We maintain an environment of radical openness," the Bridgewater site states. "(That) honesty can be difficult and uncomfortable."  Sharp criticism and open discussion, he explains, help people improve, which helps the firm be consistently profitable. There is pain, but there is ultimate gain for all.

Are there, however, costs to such success and consistent performance?  Bridgewater, as a private fund, does not report results and doesn't have to (except to investors and, even then, occasionally and in the manner it chooses).  As a reputable hedge fund with billions under management, fund managers, traders, analysts, researchers, and new MBA recruits are well-compensated. Yet at what costs?

How would a Bridgewater culture differ from the vaunted, well-examined cultures of such firms as GE and Goldman Sachs? If it works at Bridgewater, can it work in other industries? For new MBAs, how important is culture in evaluating a prospective employer?

Some outsiders say employee retention is low at Bridgewater. It's not unusual for 30-40% of those hired to  leave within the first few years. Some ex-employees say the smothering criticism starts during interviews, where interviewers crush prospects with analyses of weaknesses and deficiencies.

Dalio contends it works and suggests that employees who understand and absorb the principles thrive and benefit in the long term.

Bridgewater's principles, as they appear for all to see and examine, aren't corporate-polished. They are bluntly presented. They are ruminations from Dalio--imperative statements based on experiences in the past and based on what has worked for him the past three decades. They boil down to understanding reality, not hiding from it, identifying mistakes, learning from them, and using them to get better. Identifying, exposing and calling out mistakes boldly, brashly, and purposefully. That's where it gets uncomfortable.

Bridgewater is susceptible to being called a cult, because the principles are presented as a one-way stream of thoughts from its founder. The principles never address the details of Bridgewater's fund business. They expound on goals, planning, and behavior. Nothing about capital, risk management and asset allocation; nothing about arbitrage, currencies, technicals, trading momentum and value-investing.

Some of its principles make sense--at least for this type of organization, a large hedge fund required to make trading and investment decisions in swift-moving markets. They may work for a fund, but not for a manufacturer, an industrial complex or a conglomerate.

The principles address decision-making--a critical element in hedge-fund trading and investing fund capital. What are the goals in making decisions? How should decisions be made? How can the fund ensure that people will make the best decisions on behalf of the fund?

The principles discuss goals. Reaching goals requires identifying and solving problems. And solving problems requires harsh, candid assessment of employees. "Once you identify your problems, you must not tolerate them," Dalio writes. Diagnose the problem, he says, and solve them--even if it requires upsetting employees. After goals and problem-solving, the principles address planning and execution.

Some of the principles are reasonable and well-rationalized.  For example, Dalio says managers should obsess in putting people in the right roles, increasing the probability they can succeed.  He says in evaluating employees, pay for the person and not the job; weigh an employees' values and abilities more than skills.

Dalio says, "In our culture, there’s nothing embarrassing about making mistakes and having weaknesses....At Bridgewater people have to value getting at truth so badly that they are willing to humiliate themselves to get it." Elsewhere, he says, "(E)valuate (employees) accurately, not kindly."

As an MBA in finance (with or without experience), could you work and thrive in this environment? Would potential compensation and experience offset possible personal humiliation?


He values communication, even excess communication to ensure everybody throughout the organization understands goals, issues, and corrective action. He values managers, employees, and colleagues maintaining healthy, tight relationships with each other, making it easier to evaluate the performance of each other.

In 122 pages, almost all aspects of management and organization behavior are covered--from performance metrics to firing employees (when they exhibit no potential to improve). Some topics are not addressed, possibly because Dalio has not gotten around to writing them down. He dismisses job-related stress, leaving it to employees to internalize egos or handle the frustration of being humbled by a jarring critique of a recently completed project.

The principles don't address the value and importance of diversity in organizations--except when Dalio explains the value of permitting all voices within an organization to speak up and share their views or criticism of others.

For the most part, the Bridgewater approach is "take it or leave it." But Dalio heartily believes you might be better off "taking it."

Would you be willing to do so?

Tracy Williams

The Dreaded Performance Review

Here is the scenario. You are a fourth-year associate at a major financial institution. It's late December, or early January. Your supervising manager summons you to his (or her) office. You know the meeting topic has nothing to do with a client, deal, financial model, or presentation. You discern the uneasiness of your manager. The calendar hints at the nature of the meeting. It's time for the dreaded performance review.

You dread it because you had no meaningful review of performance during the course of the year. You dread it because you have no clue in which direction the evaluation will swing: Outstanding? Superb? Above-average? Insufficient? Below par? Didn't meet expectations? Your manager decides.

You prepare yourself for the worst of assessments and hope for the best--good or bad, fair or unfair, subjective or objective, misleading or straightforward. If you are inexperienced, you may approach it with too much confidence, because if the boss hasn't critiqued your work in severe, traumatizing ways, you assume must doing fine.

If you have been around long enough and you understand the "game" of performance reviews, you arm yourself with statistics, lists of accomplishments, any summary output from long hours of toil, and examples of where you had a notable impact on the bottom line--all matters of record that will deflect the slings of unfair observations of what you've done the past year.

Some managers handle the performance review well. It's not a rushed, one-hour session late on New Year's Eve.  The best managers provide ongoing feedback, focus on constructive commentary, start the year with goals and objectives, and revise or update them as the year unfurls.  The best managers use metrics or objective standards to measure progress with goals and are sticklers for making the process as fair as possible. They minimize bias and try for an uplifting, forward-looking experience when giving feedback.

But some managers fail at it. Many managers, especially those in a deal-doing, trading-oriented, client-focused environments at financial institutions, will say they can't find time, energy or attention span to do this for all who report directly to them. They don't hold regular review sessions, because there are other pressures to tend to--responding to clients, boosting revenues, or preparing reports for senior managers.

So they skimp. They skip quarterly feedback sessions, or provide critiques in the form of hollow, unknowing comments or in emotional outbursts. Or they whisper their assessments to colleagues, not directly to employees.  Manager and employee during the year have countless conversations in business settings, when they plot strategies to ward off competitors, make plans to win a client over, or review details of a major presentation to senior business leaders.  But they avoid the uneasiness of having regular dialogue about how both are performing--employee and the manager. They put it off, and the manager always promises there will be an in-depth performance review at year end.

For the best managers, because they have meaningful exchange throughout the year with employees, the dreaded performance reviews are welcome, lively meetings. There is less tension. The year-end  meetings are more about setting goals and objectives for the next year.

For others, these sessions often turn out to be clumsy and difficult. The employee comes away with a superficial or unfair evaluation, or sometimes the employee emerges so scathed that he or she decides "it's time to leave the insitution." That's why some experts have a radical solution:  The formal, year-end performance review ought to be done away with. 

Samuel Culbert, a professor at Consortium school UCLA-Anderson, says performance reviews--the way they are customarily conducted--ought to be abolished. He wrote the book on it:  "Get Rid of the Performance Review! How Companies Stop Intimidating, Start Managing--and Focus on What Really Matters."  The title is a mouthful, but Culbert might be on to something.

This week he wrote about it in an Op-Ed piece in the New York Times. The essay was intended to prove the error in the ways of state politicians, who favor performance reviews of state workers vs. the restrictive review standards of unions. However, he used the Times platform to say that performance reviews, in general, whether among public-school teachers in Wisconsin or engineers at IBM or fourth-year associates at Morgan Stanley, don't work well. And he explained why.

"I've learned that they are subjective evaluations that measure how 'comfortable' a boss is with an employee," Culbert said in the Times.  "Not how much an employee contributes to overall results. they are an intimidating tool that makes employees too scared to speak their minds, lest their criticsm come back to haunt them in their annual evaluations.

"Performance reviews corrupt the system," he wrote, "by getting employees to focus on pleasing the boss, rather than on achieving desired results." (See http://www.performancereview.com/ for more about Culbert's ideas and the book.)

Culbert recommends "top-down reviews," where managers and employees together set goals and objectives, measure the progress of both parties achieving those goals, and hold both accountable. In this way, it's not about the employee messing up or trying to please the boss; it's about the manager-employee in unison making accomplishments or assessing together why they may have fallen short. In this setting, the review of performance is objective, measurable, and mutual.

He also recommends a "pre-performance review."  Those sessions are comfortable for participants, revolve around honest, open discussion of goals and accountability, and often prove to be more beneficial to employee, manager and the business group.  It eliminates the one-sidedness of performance reviews.

It does, however, require time and priority. Managers must set aside time to help employees set goals and review them throughout the year. And managers' managers must similarly provide goals and objectives and incentives to make sure they do.

Many financial institutions assess employees based on forced ranking and rating systems--arguably the primary reason why performance reviews are dreaded. Ranking and ratings make it easy for business groups to carve out pieces of the bonus pie as quickly and efficiently as possible.  For most finance professionals, a year's worth of work, projects, business trips, research, revenue generation, presentations, modeling, strategizing, risk assessment, and tough client negotiations come down to a single ranking or rating. That ranking or rating contributes to holiday stress and tension among employees. They worry and wonder about it; they can't interpret what it implies.

Often managers are pleased with the work, progress and contributions of most employees.  They may say so throughout the year in passing comments and summarize this well in performance write-ups. Some are rarely critical in written evaluations and worry that criticism will discourage the best employee and cause them to leave. But a ranking-rating system requires that they "grade on a curve."

Managers are forced to assign a rating or ranking for most employees that says bluntly they are "middle of the pack," "just getting by," or "no longer essential"--even if managers don't feel it or mean it. The ranking system requires that most employees in a group must be deemed "average," even if in a group, division or sector, a large number of them are truly outstanding.

Knowing there is such a system, the fourth-year associate above dreads performance-review day. And for all the 60-80-hour work-weeks and missed vacations and enormous output (in projects, presentations, decks, models, and travel all over the country), he or she knows the ranking may likely suggest "just average" or "just getting by."

If young professionals or MBAs early in their careers cannot squash the system or are too junior to try to overhaul it for something fair and better or something that emphasizes development and improvement, what can they do?

1.  If your manager doesn't present or articulate goals and objectives, prepare your own. This doesn't require much time; it may, nonetheless, require thought and contemplation.  Show them to the manager at the beginning of the year and schedule meetings to discuss progress during the year.

2.  Scheduling meetings with managers to discuss clients, business, revenue trends and deals is not hard. Scheduling meetings to discuss performance and solicit constructive feedback is downright difficult. Many managers put them off. Some don't like this part of management. So find ways to have informal, ongoing discussions with managers about priorities, workload, working agenda, and progress. Informal dialogue will be more comfortable and often more productive. This permits you and the manager to understand better your contributions and the factors that might affect performance.

3. Prepare your own self-assessment about twice a year. This also doesn't require much time, if you keep notes during the year of what you have done and the impact you have on a team or larger group. Include contributions, strengths, accomplishments, and measured impact on the bottom line. Include areas of improvement, new interests and activities related to recruiting and development of yourself and others. Include, too, current career plans--what you hope to do five years from now.

4. Throughout the year, show initiative and insight; be creative and helpful. Find a way to show that you are thinking three or four steps ahead of everybody else. This helps you stand out among others.

Some financial institutions endorse and implement some of these procedures. But they do so primarily to ease the burden of managers who may not be familiar with employees' specific contributions during the year. At the end of the year, be prepared to present your self-assessment, if only because it helps to create a comfortable session and will spur an immediate discussion of upcoming goals and objectives.  In this way, you manage the review of performance and minimize subjectivity, biases and emotions.

These aren't solutions to Culbert's problems with performance reviews. But they are ways for that fourth-year associate or any other recent MBA to take control and present the best side of him- or herself.

Tracy Williams