How Will Steven Cohen's Saga End?

Should investors take the money and run?

If you were fortunate to invest in Steven Cohen's hedge fund, what would you do? Keep the faith, and keep your funds in SAC Capital Advisors?  Or take the money and run, while government investigators pore through trading records for evidence of insider-trading?

How will the SAC Saga end?


Tucked away along I-95 on the winding hedge-fund corridor in Connecticut is the home of the closely cloaked $14 billion hedge fund run by Cohen.  In the world of quantitative trading and hedge-fund investing, Cohen's SAC Capital is well known, envied by many, desperately copied by others, and revered by most in the investment community. These days, the fund is known outside the hedge-fund world because of  the investigative cloud that lingers above it.

Since its 1992 founding, an obsessed Cohen permitted few to learn about his fund's operations, performance, and trading strategy.  For most of the fund's existence, Cohen avoided public appearances and showed up nowhere if media appeared, except for arts and charity events. (His investments in art are legendary.)

He refused to let others take photos of him. The New York Times or Wall Street Journal published over and over the same one or two photos it could find of him in articles that chronicle the fund's history. The industry factions that follow, watch, report and try to ape his successes hardly knew or understand what went on inside. Forbes magazine estimated his net worth recently to be about $8 billion. The fund eventually reached $14 billion under management.

Nowadays headlines of SAC appear routinely in the financial press. Photos of Cohen accompany many news stories, and his face has become more familiar.  News about the fund has been sour for much of the past year or two, because the news is primarily about insider-trading investigations. 

SAC made its billions from equity trading.  Under Cohen's direction, the fund sponsors many strategies, including high-frequency trading (searching for price anomalies around the globe), fundamental and value trading, and quantitative analysis.

Former analysts, traders and researchers at the fund--after they have departed or were dismissed--have divulged morsels of SAC intelligence.  Cohen is the quarterback and captain of all trading activity, his hands always involved, his voice wielding a final say-so in trading positions and strategies. He grooms strategies, hires stalwart traders, and entrusts them with significant amounts of capital, permitting them to try out their ideas or execute their trading views.

But he was said to be harsh if performance waned or fell shy of his expectations.  He pushed traders hard, not merely to "seek alpha" (as the hedge-fund jargon goes), but to out-perform even the toughest fund benchmarks. Traders are dismissed swiftly if they don't meet targets.

Traders felt the pressure to find an edge, a trading strategy or a performance trend that would please the boss.

Over the past few years, some former traders have been accused and indicted of insider trading at funds they managed after leaving SAC. Some former employees have been accused of illegal trading while at SAC Capital.  The SEC continues its investigation of trading under Cohen's supervision. He has insisted throughout he is innocent and, in recent months, has delivered strong statements assuring investors that from his top perch he has applied tough discipline to make sure the firm stays within legal lines.

Meanwhile, regulators and law-enforcement officials comb through, around and about SAC.  SAC Capital and Cohen may never be charged of anything, but right now, a stench hovers above the fund and seems to have settled there for a long time to come.  Some investors want out--now. The typical redemption rules apply. Investors can get out, but only after applying for withdrawals and then allowing their monies to trickle out over time. 

With investigators in its backyard searching through voluminous trading records, what will eventually happen to the fund? Why would investors want to hang around and leave large amounts of money with Cohen? He has an impressive performance record, but will he admit that he is distracted by the legal cases and investigations around him?

What does an investor do? There are two or three options.

1) Get out now or when redemption rules allow. 

Certain institutional investors (perhaps pension funds and public funds that answer to a broader community) will flee, because they will not want to explain to stakeholders why they are allied with a fund where illegal activity might have occurred and where there exists the possibility, even if remote, that the fund's founder will one day be indicted like some former employees.

2)  Assess the likelihood that Cohen will one day be charged, an event that would likely lead to the subsequent wind-down of the fund.

If that assessment exceeds 50-50, wage the bet that the fund will continue and, with distractions beyond it, performance will resume at stellar levels. Because there are and will be redemptions, Cohen may scale down the fund, reduce the number of strategies, and make itself nimble.

3) Assess the worst-case scenario:

Cohen is charge and indicted, and the evidence is strong enough for a conviction.  The fund would likely wind down. But markets, regulators, banks and investors must weigh the impact of a liquidation.

Would the impact cause as much market chaos as the frightening collapse at Long Term Capital did in 1998. Its stunning, sudden implosion pushed markets to the brink of apocalyptic turmoil and forced government overseers to assemble a bank group to help settle the chaos.

In this case, would regulators step up in the same way to ensure the disposition of assets, positions and employees is handled in an orderly manner and with minimal impact to markets? Or would a group of neighboring hedge funds, down the expressway in Connecticut, sweep through to bid for the portfolios and positions and hire its expert traders?

Stay tuned.  This is a summer-time saga, likely to drag out through the fall and long enough to bore most market observers, until one day months from now government investigators surface one late Friday afternoon to catch everybody off guard with surprise announcements.

Tracy Williams

See also:

CFN: Ray Dalio's Cult at Bridgewater Associates, 2011
CFN:  Quants and Quant Funds, 2010

What Will Dimon Do?

WWJD. Not what would Jamie Dimon do? But what will Jamie do?

Waiting Anxiously for the Shareholder Vote

In a matter of days, JPMorgan Chase shareholders will find out the results of a crucial vote to determine whether Chairman and CEO Jamie Dimon should relinquish  his role as Chairman of the bank holding company. In a similar vote last year, 40% of shares outstanding voted for him to give up the role as Chairman.  A year later, Dimon and JPMorgan have had to digest continual impact from the billions in trading losses in the infamous "London Whale" credit-derivatives debacle. They have endured stiff criticism from regulators for how JPMorgan managed those losses and for how regulators perceived the bank was behaving in response to inquiries.

Dimon has already been penalized for "Whale" mistakes when his 2012 bonus was reduced, even as JPMorgan continued to generate extraordinary earnings last year and in 2013's first quarter. His inner circle of senior managers (operating committee members) has changed faces substantially with some departing, some nudged out, and others promoted.

(JPMorgan reported record income of $21 billion in 2012--good enough for a 15% return on equity. It earned $6.5 billion in the first quarter, 2013. By year-end 2012, the bank reported assets exceeding $2.3 trillion supported by an equity base of over $200 billion.)

Some shareholders, who have large stakes and have stepped into activist roles, want to make sure such trading losses or astounding surprises in mismanagement will never occur again. They want to reorganize board membership, juggle risk-management oversight, and put more checks in the checks-and-balances of Dimon's power over the organization.  In effect, some contend that JPMorgan-related mishaps might not have occurred if Dimon had a chairman peeking over his shoulder.

As the vote counting winds down, the question for the moment is not what should Dimon do or what would he do.  The question? What will he do if the role of Chairman is seized from him?

His storied banking resume' indicates he doesn't like playing second-fiddle. He's comfortable biding a little bit of time as he awaits a top spot, but he fidgets and fumes if the wait is prolonged. Moreover, certainly he wouldn't want to give up power, authority and influence he has had for eight years or more.

Since he has been JPMorgan's head, he has not had a formal second in command, a president waiting in a green room for him to retire.  When JPMorgan purchased Bank One ten years ago, where he had been Chairman and CEO, he agreed to be President and CEO-in-waiting.  Typical of Dimon, he itched to assume full control of the bank sooner than he was supposed to. From the moment he arrived in New York from Chicago, he aggressively pushed his agenda of expense-control and balance-sheet strengthening, while then-CEO Bill Harrison was still in office.  Back then, Dimon urged the board to make him Chairman and CEO months ahead of schedule. That was no surprise.

Before JPMorgan and Bank One, Dimon had made his mark at Citigroup. As Sandy Weill's long-time protege' when the two of them built a financial-services behemoth during the 1990s, Dimon, over time, agitated his boss, even undermined him. Eventually a power struggle and some fiery situations caused Weill to fire his favorite deputy. Dimon might have been the CEO of Citi today (and Citi might be a much different organization), if he were willing to play fair and square with Weill.  Weill had the last word, and Dimon went on to make financial history elsewhere.

What will Jamie do if he's no longer chairman of JPMorgan?

Will he remain as CEO and proceed to manage the bank in the way he has since the financial crisis--expanding in all areas, controlling costs and operations, restructuring the mortgage businesses, and hustling to keep a trillion-dollar bank under control? Will he be willing to subject his strategy, actions, and every managerial move to the second guessing of a non-executive chairman--especially when Dimon hasn't been accustomed to such in the past decade?

Or will he agree to finish out the year or two as CEO and opt to retire sooner than he expected? Will he cooperate, manage the global business, and assist in selecting a CEO successor and grooming him or her? Will he cooperate, too, if only to ensure his own shareholder stake in the bank (over hundreds of millions in ownership) is not jeopardized?

Amidst this debate of corporate governance, many have taken sides. Some have pointed to studies that show the impact of separating the two roles.  Many of the studies indicate little, if any, favorable impact on a company's revenue or earnings growth or stock price when the roles are separated.

Jeff Sonnenfeld, a senior associate dean at Yale's School of Management, a Consortium school, in The New York Times this week called the shareholder vote at JPMorgan a "Jamie Dimon Witch Hunt" and reminded readers that some of the most scandalous companies in the last century, including Enron and Worldcom, had separate Chairmen and CEOs.

Other experts point out the decision to separate should not be determined by previous studies, but by the particular challenge or issue that confronts the company. Case by case, they say. In the case of JPMorgan, the challenges are to (a) manage the complex risks and operations of a financial institution almost too big to fail, (b) respond to, report, and manage the escalating requirements of regulators, and (c) meanwhile, continue to grow revenues, earnings and a stock price that seems to have trouble eclipsing the $50/share threshold. Some of the proponents in the shareholder vote think JPMorgan can overcome these kinds of challenges with two people in charge.

But what happens to JPMorgan and its ability to confront these issues if one of the two is not Dimon? Is Dimon about to bolt out the door?

Here are a couple of scenarios.

1.  Shareholders vote to keep Dimon as Chairman, but the vote is close, say 51%-49%.  Dimon, therefore, won't linger or care how close it was. With a short memory, he will proceed along his recent course--cooperating with regulators, gearing up for Dodd-Frank and Basel III, reshaping his inner circle, and driving his bank leaders crazy, pushing them to increase revenues, manage all risks imaginable, and control costs.

Several recent scoldings from regulators and all the attention in the press about confrontations with lawmakers and regulatory bodies will keep Dimon focused on issues of risk, regulation and compliance.  The bank is re-engineering its organization from front to back to ensure compliance and help comfort outsiders to show Dimon has things under control in the way it seemed he didn't--momentarily--during the "Whale" crisis.

Events of the past year will encourage him to be more forthcoming with the public about his intentions for succession.  He might even quietly support the effort that his successors be a separate Chairman and CEO. In recent months, with the shuffling among those in the inner circle and by appointing people into the roles of COO, he has offered clues. But in the past, he offered hints of who were the designated favorites one year, yet changed the slate quickly a year or two later.

2.  Shareholders vote to take away Dimon's Chairman title, but permit him to remain as CEO as long as he wishes. Dimon will be wounded. However, he would be a professional, uttering the right remarks about his support for the new structure. He would also likely regroup and contemplate next steps. He would not be comfortable taking directions regarding strategy and the deployment of capital from a part-time Chairman, especially if he feels confident his sole leadership is the best course.

As an experienced professional and an investor who will not want boardroom turmoil to inflict unnecessary volatility in the stock price, Dimon won't pout and play spoilsport. However, the thrill and energy of running JPMorgan won't be the same. The power he wielded within the organization may not be the same, because the buck won't any longer stop with him.

He would likely plan a retirement over the period of a year or two. Following the footsteps of former CEOs, like GE's Jack Welch, known for being accomplished, premier business managers, Dimon will review his achievements, reflect on them, and will likely want to write about them (or teach them to a business-school finance class). He won't sit still and will pursue something bold. He'll want to advise future bank leaders on what went right, what worked, how it all worked, and what went wrong.

And it's likely then he'll insert the last word to say that separating the roles of Chairman and CEO at JPMorgan might have been something, in his case, that didn't work as well as the status quo.

Tracy Williams

See also:

CFN: JPMorgan and Its Trading Losses, 2012
CFN: Jamie Dimon on Regulation, 2012
CFN:  Jamie Dimon's Message to Shareholders, 2011

Why He Left Goldman

It was the culture, he contends

Recall about a year ago. It was the op-ed piece heard all around the business world, when Goldman Sachs vice president Greg Smith dared to announce his resignation on the pages of the New York Times. After an 11-year stint in its institutional sales unit, Smith announced he had had enough and it was time to depart. He decided to share publicly why his disappointments in the business culture led to his decision to leave a fairly lucrative position.

(See  CFN: Goldman Sachs and the Letter, Mar-2012)

At the time of his departure, Smith was head of U.S. Equity Derivatives in Goldman's London office. (In London, he was an "executive director," which at Goldman was equivalent to a U.S. "vice president.") He had progressed swiftly through the ranks and was highly regarded for his expertise in markets, clients and derivatives in his special perch. By most accounts, he was not a difficult employee and colleague. He had made meaningful contributions in many ways--building a new business in Europe, preparing  market insight in the form of frequent, written commentary to Goldman salesmen around the world, and agreeing to transfer to the London office, when he didn't want to.

The revered culture of clients coming first had evolved, he said, at Goldman in ways he felt uncomfortable. The crisis was partly at fault.  Every partner, managing director, vice president, and associate, he observed, was out for him- or herself. Survival was the mission of the day.

It boiled down to this, he observed:  The trading culture had evolved into a massive mission of accumulating "GCs"--gross credits, sometimes at the expense of doing the right thing for the client.  The value of the employee to the firm was determined by the total amount of GCs he or she accumulated during the year.

Mindful of this, the employee overlooks teamwork, partnership, and support for other colleagues and focuses singularly on maximizing GCs and, therefore, the year-end bonus, even if it means swiping GCs rudely and unfairly from colleagues or being willing to unload "toxic waste" securities onto unsuspecting or unknowing clients. 

So after he had his apocalyptic moment (on a business trip to Southeast Asia while Goldman executives had been summoned to a Congressional hearing), he decided to quit. As many expected, after the  op-ed blast in the Times, Smith went into hiding. He emerged from a  self-imposed rest when he published a book last fall to recount his experiences at Goldman and explain his well-publicized departure more thoroughly.  The book, Why I Left Goldman, received lukewarm reviews.  Reviewers and industry-insiders, and perhaps Government regulators, were looking for something more, perhaps a hint of scandal, a more detailed account of mishaps and fraudulent business practice. He presented none of that.

The book is similar to other detailed accounts of a young banker or trader's venture onto Wall Street. They are views from the ground up, from the trenches, from entry-level positions as the novice tries to adapt to the ways of a zoo-like trading room.  Smith's book reminds us Michael Lewis' Liar's Poker."

Smith is fresh out of Stanford and thrust onto a derivatives-sales desk.  Lewis had just graduated from Princeton and encountered the bowels of Salomon Brothers' legendary trading floor and lived to write one of the most spectacular, humorous accounts of Wall Street ever.  Smith's book is also similar to a lesser known, recent book, A Colossal Failure of Common Sense, by Lawrence McDonald of Lehman, an up-and-coming fixed-income trader, who viewed his last days at Lehman, not with sarcasm and humor, but with anger and humiliation.

Notwithstanding the so-so response to a book we knew he would write, for the newly minted MBAs, those who contemplate career paths in sales & trading at major banks, those who are considering institutional sales, the book has its strengths. It is an invaluable introduction to the trading floor, describing the environment, work pace, client groups, and specific roles.  Institutional sales will have an important role at big banks, as regulation prohibits much of proprietary trading.

Reform and new rules, whenever they are finally implemented in full, will permit the big banks (from Goldman Sachs to Bank of America and Citigroup) to engage in trading on behalf of clients, not necessarily on behalf of themselves.  Proprietary trading is being eased out of existence. Trading for clients will be permissible.  (Trying to distinguish between the two will sometimes be a nightmare for banks and regulators.)

Some will argue that as technology advances and clients get more comfortable with it, electronic trading and execution will replace sales professionals.  But as the book shows, sales professionals will be necessary to bring clients on board, help them with best execution, guide them through rough markets, and present new trading ideas.

Thus, the book provides a day-to-day overview of institutional sales and explains a conventional career path from analyst to managing director.  It describes the structure of a sales & trading organization, the management, and the relationship among sales professionals, traders, researchers, and floor brokers. It shows how the firm generates revenues from trades, the more difficult or exotic trades generating the largest commissions or mark-ups.

The book is a reflection on firm culture from the vantage point of the trading floor. Firm culture is important, but what is more critical is how the culture penetrates all activity, roles, relationships and transactions in the firm. Smith, in the book, contemplates firm-wide goals vs. personal goals, how the two intersect, but how they sometimes collide. And he shows how bad, selfish personal goals can be inferred from vague firm-wide goals.

Especially in the wake of the financial crisis, he highlights how personal goals sometimes became a higher priority than firm goals. In a vivid, poignant scene in the days after the collapse of Lehman Brothers as markets nose-dived, Smith watches a senior managing director on the trading floor glued in a silent trance to the computer screen, studying his personal portfolio of assets, having no care in the world with what was going on elsewhere with his clients or with Goldman.

Thirdly, Smith demonstrates the impact of corporate politics on a personal's career success. He had learned quickly, perhaps in his first few weeks, that success at Goldman or at any large financial institution would not be a result of effort, hard work, and time commitment. To get promoted to vice president or managing director, to have the opportunity to work abroad (in London, in his case), or to transition into a different role all required special networking skills. He would either have to learn those skills or rely on buddies, mentors or managers to guide him.

In his case, Smith wasn't a schmoozer. He was, however, fortunate to have advocates nearby on the trading floor, champions on his behalf, people who liked him and were willing to grant a favor or speak up on his behalf.  Generating "GCs" (or client-related revenues) could lead to a big bonus, but finding someone to spread the word about him could lead to a promotion. Over time, he learned to win favors in bars, accompany managers on business trips and bachelor parties, attend social functions and farewell receptions, and even allow clients to look good in parlor ping-pong games.

Diversity. Smith's book hardly touches the subject.  He had the opportunity to address it, because he describes himself as an outsider trying to find his way within a powerhouse firm. (He is a foreigner who grew up in South Africa before coming to the U.S. to go to college.)  He might have been so consumed by his frustration with how he perceived Goldman had evolved that there was much he couldn't get to. (For example, he barely discusses other parts of Goldman, including its investment-banking machine or its sectors in asset management, private equity or private banking.)

It appears, nonetheless, that women in sales & trading have had scattered chances to reach the highest rungs.  A handful of his bosses or senior colleagues, over the decade, are women. And he observes how they have had to evolve to survive or change to battle the machismo ways of trading-room trenches.

The fanfare around the op-ed piece book will likely fade into memory and become a mere, colorful chapter in the history of Goldman. Smith will likely move on beyond Wall Street. He learned a lot about global markets, clients, derivatives, financial products, exchanges, and business management. You can bet he has another book in mind. He highlights the foibles of certain banking cultures in this one. In the next, he'll probably present solutions.

Tracy Williams

See also:

CFN: How Does Goldman Do It? 2010
CFN:  Goldman Tweaks the Ladder, 2012
CFN:  The Role Goldman's Board, 2010
CFN:  Morgan Stanley Tries to Please Analysts, 2012
CFN:  The Volcker Rules, 2011

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

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

JPMorgan's Dimon: A Regulatory Rant

Finance professionals strive to keep up to date with markets, trends and rules. They have a check-list of reading material, journals and documents they refer to from time to time. They scan the Wall Street Journal, Financial Times or BusinessWeek whenever they can. They peek at investment magazines and websites when they think they must.  They peruse SEC documents, accounting rulings, equity research, and analyses from ratings agencies.

Each spring, they find time to read Warren Buffet's annual letter to shareholders--often a primer in investment basics, occasionally a skillful interpretation of finance trends or opportunities.

Or if finance professionals are wedded to trends and fashions in financial services, they tune to JPMorgan Chase's Jamie Dimon and his state-of-the-industry message in the annual shareholders letter.  Since he took the helm as CEO in the mid-2000s, Dimon has used this forum to present more than an analysis of revenues and profits.  Dimon takes the podium and delivers an op-ed piece that roars for dozens of pages.

At the pulpit, aware his audience ranges from investors and hedge-fund managers to regulators, analysts, students and perhaps a politician or two, he selects the important financial issues of the season. He rattles and shakes those issues and explains them in easy-to-understand patterns and data points.  After a neat, digestible presentation of the facts (and his interpretation of them), he delivers knock-out punches:  his views of what happened or is happening, his opinions of what everybody needs to do going forward (including himself, employees, communities, investors and governments), and his promise what his institution will do in the years to come (and of course why all that will help the stock price of JPMC.)

In years past, he was brave to tackle and offer a CEO's candid view of the brewing and bubbling over of mortgage markets, the darkest days of the financial crisis, and the public's perception of bankers being over-compensated.  This year, his letter addresses what is plaguing most large financial institutions these days--new financial regulation banks must comply with over the next decade. The 2012 letter, in part, is a treatise on bank regulation. There is much about this onslaught of regulation that bothers him.

JPMorgan, Dimon writes in his letter, has 14,000 new rules to review, understand and adhere to.  They include U.S.-based Dodd-Frank regulation, the international requirements of Basel II and III, consumer-related regulation, and the Volcker rule that prohibits proprietary trading and will change the pulse, pace and perhaps earnings trends of large banks.  They also include, Dimon explains, requirements of big banks to prepare "living wills" and complex capital-adequacy stress tests. Dimon doesn't disagree with the spirit of regulation. But he fumes at the extraordinary burden of complying with arcane, nebulous rules being thrust on his bank's plate right now. There must certainly be a simpler way, he asserts.

He disagrees with the inefficiencies of dozens of regulators around the world imposing overlapping rules, often without regard to consequences. He's angry that his institution will need to prepare liquidity reports--not just one liquidity report for all regulators, but five liquidity reports for five regulators.

Dimon claims new bank regulation at JPMorgan Chase will require significant amounts of time from 3,000 designated employees and will cost about $3 billion to implement, gather data, perform calculations, monitor exposures and assets, set up new systems, prepare and submit reports. To him, that would be thousands of hours of employee-power not devoted to the business of generating banking revenues. 

As always, after his well-reasoned, often well-articulated griping session, he offers solutions, although this time he knows his solutions and recommendations come too late. Or they will land on ears of government officials not likely to be sensitive to what will appear to be big banks whining about being required to clean up the messes from the crisis.  "The frustration with and hostility toward our industry continues," he writes. "Regulation has become politicized," he says later.

He would settle for, in a dream world, for the opportunity to prepare one simple report for as few regulators as possible--and perhaps a couple thousand fewer employees dedicated to monitoring rules and preparing reports. 

New regulation is intended to minimize the recurrence of a financial crisis, eliminate possibilities of a collapse of the financial system, and reduce the probability that the downfall of one big bank will be a detriment to all institutions globally.  So all bank leaders deal with the fact that regulation--for good or bad--may reduce profit opportunities and lower returns on capital.  Dimon, in his letter, accepts this premise and shows how his institution will overcome hurdles to achieve stable, consistent returns. In fact, he spends a page or two explaining how the investment bank, no longer blessed with the ability to bolster returns from the fortunes of prop-trading, will remain relevant, profitable and at the top of league tables. "Market-making"-related trading will still generate substantial revenues.

In 2012, Dimon vented. He knew he had the stage, a wide audience of stakeholders who understand his business, and also had several uninterrupted pages in the front of the annual report.  He knew his voice wouldn't be misinterpreted in CNBC soundbites or ignored by parts of the population uninterested in the views of big-bank CEOs.

For those passionate about a bank's legal, compliance and regulatory requirements, there is a reason to cheer the decade to come. Dimon's letter suggests there will be long-term employment security for those immersed in regulatory reporting and the black boxes that used to look for prop-trading opportunities, but now must be used to prepare five liquidity reports for five regulators.

Tracy Williams

See also

CFN:  Dimon's State of the Industry, 2011

Role Models and a New Network

NYU-Stern graduate Daria Burke

Who are the women of color, the women from under-represented groups who occupy "C-suite" positions at companies involved in global business? A roster of such names usually includes Ursula Burns at Xerox, Andreae Jung (until earlier this month) at Avon, and Indra Nooyi at PepsiCo, CEOs of companies with billions in revenues and even greater numbers in market value.

Burns, Jung, Nooyi and others preside over companies, business sectors, geographic units, corporate brands, major subsidiaries and functions in finance and treasury. They would also be women from who hustled, regrouped, paused to raise families, scratched, climbed and willed their way into top spots, board rooms and significant leadership positions.  Their  few numbers, while growing, suggest there is still a ways to go. Those in CEO roles, such as Burns, Nooyi and Jung, are known and are seen commanding the podium at shareholder meetings or outlining strategic plans in a broadcast on CNBC.

Those below the CEO rung may not be as widely known outside of their industries and are not prominently profiled  in the business media. As such, they aren't presented as role models as widely as they could be--especially as role models for younger women contemplating a similar corporate-ladder climb or a long-term career in business after the MBA.

That's where Daria Burke, a Consortium alum and MBA graduate from NYU-Stern, stepped in.  She is doing her part by establishing a network of black women with MBA degrees, with corporate promise and with the resolve to succeed in business. Earlier this year, she and others established a new group, called Black MBA Women. The group has its own website and Linkedin group.
 
Burke wanted the group to go beyond sharing experiences and expertise about business opportunities in a network forum. She also wanted network members to learn about, study and follow the career steps of other successful black women in business. For many black women at or near the top rungs, there are lessons that can be shared or advice that can be exploited, based on their experiences.

Hence, the group will present and highlight success stories to share with members. It will spread the news and show what has been accomplished by black women in senior business positions, whether they were CEOs, CFOs, or heads of international marketing and sales, legal and compliance, client relationships, Europe subsidiaries, Asia expansion, risk management, technology and systems, or human resources.

The new group's mission is "to reinforce and create a strong network of African-American women with top MBAs."  The group will try to influence and encourage younger professionals and students and "empower the next generation of young black women by increasing their access to education and business networks."  Hence, identifying role models, presenting the profiles of women in senior roles, and heralding their achievements are primary objectives.

Burke says in the website she was concerned about the "staggering number of African-American girls and post-collegiate women" who don't know about the business successes of black professional women with MBAs from top schools.

She said this week, "I was truly inspired to create this organization by my personal network and by all the young ladies I meet and speak to about going to business school."  She added, "I've gotten a wonderful reception so far and am grateful for the support."

Since graduating from Stern four years ago, Burke has worked in various marketing roles--her specialty.  She is currently Director of Makeup Marketing (North America) at Estee Lauder, steadily rising into roles of greater responsibility and impact.  At Stern she was a student leader in the school's Association for Hispanic and Black Business Students (AHBBS). Today, she is the head of that group's alumni group and decided, along with others, they can do their part to support black women MBA students and alumnae.

The group's website features "Power Profiles" that highlight the business accomplishments and career paths of black women in senior business roles. They include Tracey Travis, the CFO at Polo Ralph Lauren, who has an MBA from Columbia.  Ursula Burns, Xerox's CEO, is featured with a profile that highlights her engineering background. Burns used her undergraduate and graduate degrees in mechanical engineering to launch a 32-year (thus far) career at Xerox.  She was named CEO in 2009.

Edith Cooper, global head of human capital management at Goldman Sachs, also profiled, started out in the firm's energy group and now manages all facets of the firm's recruiting efforts and diversity hiring.  Cooper received her graduate business degree from Northwestern-Kellogg. Rosalind Brewer, CEO at
Sam's Club, is featured, as well.

As Burke hopes to show, dozens, hundreds, if not thousands, of young students may not have been aware of the women in these roles, the bottom-line responsibilities they have at large, major companies, the quiet, effective influence they have in diversity initiatives, and the impact on younger women just from being in the position.

Burke encourages women to join the group as members on the website or via Linkedin.

Tracy Williams

Something Different: A Special NFL Documentary

From Emory MBA to Film Production

Now and then MBA graduates depart from business school with aspirations to succeed in a conventional career: Consulting, banking, investing, marketing, or start-ups.  Somewhere along the way, they  re-discover themselves or  re-kindle other passions and head into other directions.  They find new interests and opportunities. And off they go.  Sometimes they transition into another conventional pursuit. Or sometimes pursue something off the beaten paths.

Theresa Moore, a Harvard athlete and graduate, earned an MBA from Emory (now a Consortium school) and started out conventionally in marketing at Coca-Cola.  However, along the way, she switched courses, while  taking advantage of her business education and experiences.  Today she runs her own film-production company and directs and produces her own documentary projects.

Her most recent project aired on CBS-TV in December and the NFL Network in February. She directed and produced "Third and Long," a history of African-Americans in pro football. (See  Third and Long for excerpts.)

 It was critical, she says, to go back and go beyond mere black-and-white footage of the stalwarts from the 1960s or 1970s. She wanted to capture the essence of those experiences by interviewing many of the stars first hand, grabbing their impressions, their stories, their feelings, and other anecdotes of blacks in pro football during the days before it peaked in popularity. She wanted them to tell their own stories of how they contributed to pro football's rapid rise in popularity.

In the documentary, Moore, who is president of T-Time Productions, interviews such former stars as Deacon Jones, Jim Brown and Rosey Grier. They share locker-room stories, analyze their own performances vs. today's players, and recall days when blacks comprised only a handful of players on a team. They discuss how they hurdled barriers to earn a team spot or win general acceptance. Moore worked with the NFL to use stock footage of game film, but her project comes to life with engaging, colorful interviews. The players open up and share their stories, their reflections of the game back then, and the parts the play in the NFL's evolution.

With this project wrapped up, Moore is involved in other activities and wants to do similar projects.  She says in other sports, there are black or female athletes who were courageous pioneers in their pursuits and who, too, have stories and reflections. She wants to capture their impressions, anecdotes and memories--perhaps before it's too late or before the elapse of time dismisses their contributions or roles.

Her project "License to Kill: Title IX at 35," a history of Title IX that includes interviews with college women athletes over the past decades, will be distributed for education purposes.

Her projects have themes, purpose, storylines and ties to history. However,  Moore says they have yet another important objective:  She wants to document thoroughly the commentary and accounts of black and female athletes from previous decades to have an accurate account for archival purposes.  A vast pursuit, but essential for sports historians, as they track the evolution and impact of sports and study the contributions of major participants--including black and female athletes.

The long-term project is ambitious, so she is using her business experiences and contacts to plan a way to accomplish it.  For more about her production company and its agenda or for those interested in learning more about her pathway from Harvard to Emory to the NFL, see T-Time.

Tracy Williams

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

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

Simmons' Value on Goldman's Board

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


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


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


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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tracy Williams

Networking Effectively: Who Knows You?

Dr. Benjamin Akande', dean of the school of business and technology at Webster University, likes to tell the story of how he approaches a business networking setting. Recently he walked into a large room filled with business professionals mingling and socializing.

"I sat and watched for 10 minutes. I watched the dynamics of the room to give me an edge," he said. Most were engaged in focused dialogue. Some were meeting, greeting and moving on. Some were performing host duties. Dr. Akande' was devising a plan.

Dr. Akande' presented a webinar on networking May 5: "It's Not Who You Know, But Who Knows You." The webinar was the fourth in a series of webinars, sponsored by the Consortium Finance Network. Over 170 people participated, joining the session from all parts of the country. They included Consortium alumni and students, corporate sponsors, new Consortium students, prospective MBA students, and Webster alumni and students.

In his networking story, Dr. Akande' scoped out the room and strategized on how he would benefit from the contacts he would make in the next few minutes. "I identified who was talking to whom," he said, describing his pre-networking plan. After he observed the dynamics of the room and plotted how he would work it, he decided just from careful observation whom he wanted to meet and where he wanted to mingle in the room. He proceeded to introduce himself and make proper contacts with the right people in the right way.

That day proved to be fruitful, he said. He made at least two very important contacts, and he followed up on them immediately.

In his CFN presentation, Dr. Akande' shared experiences of what has worked for him and recommended techniques for professionals. He provided guidelines for students, for MBA graduates looking for jobs, and for alumni who want to transition into other areas.

He responded to dozens of questions from participants, who wanted to know how he organizes the data in his network of over 5,000 contacts, wanted advice on how to prepare business cards, wanted hints on how to overcome shyness or rejection, and asked how to handle telephone interviews.

Dr. Akande' emphasized follow-up and immediacy. "A lot of folks don't take the time to connect, to do the little things to follow up." He told how at the gathering in his story, he made the two contacts, and by the time he was in a cab leaving the venue, he was already sending follow-up e-mails.

Be yourself, and be original, he said. Know the rules and traditions of where you are. Dr. Akande' noticed how in St. Louis, when people ask where you went to school, they often mean high school. He grew up in Nigeria and learned how to answer the question to his advantage when it came up in area social events.

He described the unusual ways and odd settings in which people can network. "I love networking at airports," he said. "The barriers come down. People want to meet other people." He said he has made meaningful contacts at church, because it's a "democratic setting," at sporting events, and in political campaigns (on both sides of the party spectrum).

Dr. Akande' said, however, his favorite place to network is Starbucks. "Yes, Starbucks on a Saturday morning. Try it." The calm, placcid atmosphere at a coffee shop on a weekend morning allows people to be more engaging, more themselves--free of hidden agenda.

He provided suggestions on how not to be a "pest," how to sense that the moment is going nowhere and the other person is no longer interested in dialogue. He recommended that people shouldn't "park" during networking activities, shouldn't remained glued to one group for long periods--even if they want to. He showed how one can withdraw from a conversation without being rude or abrupt.

Dr. Akande' told how to rebuild relationships that may have been diminished by long periods of no contact or little interest.

One other favorite hint? "I don't send Christmas cards," he said. "I send Thanksgiving cards." People remember them, and they read his notes. They stand out. And he wishes his recipients both a Thanksgiving and Yuletide greeting at once--and thanks them for whatever they might have done for him during the year.

It's 2010, the year of Facebook, Twitter, and an assortment of social media. Webinar participants asked how to use them to a professional advantage. Dr. Akande' reminded all to keep Linkedin profiles up to date and acknowledged the personal benefits of social media. "But social media cannot replace trust," he said, "or the ability to look at the other person in the eye. You can't hide behind it."

"Don't unfriend a friend (in Facebook)," he added. He found that offensive and reminded his audience that one never knows when that contact will be useful or helpful in the long term.

Many participants were new Consortium students who will journey to Orlando for the Orientation Program in June and meet corporate representatives while there. Some asked for his advice in approaching the event. He said, "Do research and homework on the corporations you are interested in."

Dr. Akande' has been dean at Webster the past 10 years. The business school has online offerings and campuses in the U.S. Europe and Asia. His academic interests include economic development, leadership, and generational diversity. He helped lead the effort to create the school's Global MBA, full-time, one-year program in five countries. He is currently working on a book, "The Ipod Generation: It's Their World, We're Just Living in It."

CFN will follow up to provide slide summaries of the presentation to those who registered.

Dr. Akande' said he hopes (and expects) to see participants in Starbucks for his next Saturday-morning coffee run.

Tracy Williams

Coaching for Finance Executives

JPMorgan Chase CEO Jamie Dimon often discourages the bank's use of executive coaches. Employees, he says, should be coached by managers, not outside consultants. Competent managers should guide professionals, give them career advice, polish their strengths, transform their weaknesses, and help them become business leaders. If managers were doing their job, then there wouldn't be a need for executive coaches, he has said many times.

But at many financial institutions, plain and simple, some senior managers do it, and many don't.

There are many reasons. The pressures, workloads and tasks senior managers are burdened with get in the way of a requirement that they develop talent and advise experienced personnel on career paths. With budgets to meet, deals to do, revenue objectives to reach, risks to manage, investments to make, research to do, and a harsh, unrelenting work schedule--they don't make it a priority to develop staff for the long term. Some do; many don't. Most want to, and just about all think it's critical. Yet often, it doesn't get done consistently.

When senior managers can't perform these roles, in recent years others have stepped up to fill the gap. Mentors fill that role informally in some ways. And executive coaches or career counselors do it in other formal ways.

Some finance executives who have long-term ambitions and who pursue a track to senior management have sought help from such coaches. Some institutions offer such services internally in career-advisory programs or by hiring select coaches to advise experienced staff in a specific area for a defined reason. An institution may ask a coach or counselor to prepare an executive for a more complex managerial role, to assist him/her in making more polished presentations of complicated material, or to help in developing staff.

These coaches help professionals decide where they need to improve to advance to another level or what they need to do broaden skills or make themselves known within vast institutions.

But there comes a time when professionals seek advice externally on their own and will go outside for assistance from a consultant, a career counselor, or an executive coach.

How can executive coaching help the finance executive?

A coach or advisor can help develop a long-term career plan, one that can be tweaked and adjusted flexibly. Many these days help the professional create a "personal brand," a "buzz" or a persona that helps him/her separate from the pack or distinguish from the rest of the crowd.

Coaches like to assess strengths and weaknesses. They will likely try to polish strengths, attach those strengths to the "brand," and help executives manage through weaknesses.

Most coaches help executives focus on specific roles of leadership--meeting presentations, deal negotiations, client interaction, client presentations, speeches to large groups, board-room presentations, managing conflicts, or managing large departments. Again, how do you shine and separate yourself from all others? How do you conduct yourself in each of these scenarios with confidence and self-assurance? How do you close the deal? How do you get clients to warm up to you? How do you present your annual business plan to a senior-management team?

Coaches are probably most helpful in determining a game plan for middle-managers to grow into senior managers and for senior managers to transform into accomplished leaders. How can a Vice President become a Managing Director? How can a Team Manager become a Department or Sector Head? How does the Head Trader become the Industry Head? How does Sector Head become an exceptional, proven business leader?

Should she take on an international assignment? Should he get more experience in a marketing role? Should she show she can shine in a major revenue-generating group? Should she take time to learn more about a new product? Does he need to improve how he interacts with peers or presents a budget proposal or client review in a large meeting? Could he enhance he appearance or improve how he communicates?

Even Dimon will admit today that after his 1998 ouster from Citi, he benefitted from coaching, advice from elders, and periods of self-reflection before he resumed his career at BankOne and JPMorgan. And he benefits from a counselor who taps him on the shoulder to remind him not to lose his cool in a presentation on the financial crisis in Washington. (Still, he challenges managers to act as everyday executive coaches.)

Consortium alumnus Shayna Gaspard runs her own executive-coaching and professional-development firm, Brand You Consulting (http://www.brandyouconsulting.com/). Her background and experiences are in marketing--most notably in brand marketing at Coca-Cola. Yet she thinks finance executives, too, can benefit from professional guidance. She has worked with many finance people in transition in the past.

Her company tries to help executives "take control" of their careers in several basic ways and with an emphasis on the self-brand. BrandYou Consulting helps executives "present (themselves) as more than the sum of (their) experiences, provide others with a clear understanding and appreciation of what is (unique about them), and position (themselves) to be 'top of mind' for opportunities (they) seek."

Shayna developed a five-step model, the ADEPT process, and uses it to help clients create that brand. Brand You Consulting provides services to students, professionals in transition, and professionals aspiring to senior management. (Those interested in her services can reach her via her website or CFN.)

She has an advantage with those in the Consortium community. She shares a common background with many alumni and friends--having been an MBA student (at Emory) and having launched a career at Deloitte Consulting and Coca-Cola.

Shayna is eager to learn more about what finance professionals seek in the short- and long-term. She can fill the gap when internal guidance within financial institutions isn't there or isn't performing up to par. She has tools, she says, that will permit young finance executives to take steady steps to levels of senior management and substantial responsibility.

Tracy Williams