Finance: Still a Popular Destination?

Almost a third of Tuck's grads went into finance

Take a peek at the latest statistics.  At many business schools, they're out and available. MBA graduates from the Class of 2013 have launched their post-business-school careers, and they haven’t avoided financial services as much as the popular impression suggests. 

True, countless thousands who've entered and finished graduate business school since the worst days of the crisis opted not to pursue banking, trading and investment management or other financial-services paths.  The industry has endured transformation of all kinds (regulation, business restrictions, non-stop restructuring, and souring popular sentiment).  And it’s true, too, the industry had become a turn-off to some smart students who in years past would have pursued investment banking without a thought.

In current times, the rewards, comforts and predictable career paths in finance are still uncertain. Don't forget, too, the knocks on jobs and roles that had once been perceived as  prestigious and awe-inspiring on the cocktail circuit.  Many MBA students at top schools, so goes popular sentiment, will likely prefer more humane, more constructive routes in a long business career.

But the statistics are out for recent business-school classes, and they suggest MBA students continue to flock to certain areas in financial services.  Finance will still attract those who are inherently interested in finance, those who have finance in their bones, so to speak. 

Perhaps the numbers are not surging as much as they were pre-2007, but they aren't insignificant.  Or  perhaps banks, investment managers, and trading firms are doubling down to make special efforts to present themselves more fashionably to students, describing career opportunities better, and promising easier lives on the work-life-balance front.   

However, perhaps the industry is more defined, better understood after all the years of restructuring and gearing up for an environment ensconced in new regulation.  Of course, some hard-core students, fascinated by markets, deals, transactions, and cash flows, will head toward finance despite what they hear, see or are told.

Compensation helps, too.  It continues to be one attraction.  Data and anecdotal evidence suggest financial institutions still pay well, even if the industry pulled back and rationalized (and reduced) compensation after the mid-2000’s splurge.

Let’s take a look at Dartmouth-Tuck, a Consortium school. Its career-advisory unit recently shared data for the most recent graduating class after it received a sufficient number of responses from departing students. Tuck is a good example, because it has an outstanding history preparing graduates for Wall Street, has attracted large numbers interested in finance since its early days, and has a reputable finance division.  

The Tuck data indicate consulting is the hot spot these days.  MBA graduates are flocking to what is referred in campus jargon as "MBB"--McKinsey, Bain and Booz. In Tuck's Class of 2013, consulting firms hired 27% of the class (and offered the highest amounts in compensation).  In all, 33% are working in consulting roles, including those working at non-consulting firms or working in the consulting arms of the big accounting firms (Ernst and Deloitte, e.g.)

For some MBA students, consulting offers an experience, similar to what they might have received at an investment bank. They get to do extensive research and analysis.  They get to study corporate strategy and make recommendations regarding growth, expansion, and acquisition. They participate in “live transactions” and prepare exhaustive presentations for clients. They travel around the country. 

They also get to have meaningful contact with clients and sit in meetings with clients' senior managers.  Some become experts in the industries of their clients. Hence, while consulting has always been a favorite first job for MBA students, consulting might be swiping a handful of those who a decade ago would have marched right into Goldman Sachs or Morgan Stanley (or Lehman Brothers, back then) at the first whiff of interest on the banks' part.

Yet the numbers going into finance haven’t dwindled that much. MBA graduates at top finance business schools like Tuck (and arguably NYU-Stern, Michigan-Ross, Virginia-Darden, all Consortium schools) are finding their ways back to Wall Street, but perhaps in a variety of roles.  About 30% of the Tuck Class of ’13 headed to financial institutions, and about 35% are working in finance functions. In investment banking, 14% of the class went to work there; 11% are working in classic investment-banking functions (equity or debt underwriting, M&A, client advisory, etc.)—numbers that don’t suggest a lack of interest in  this generation of students.

Tuck’s statistics, nonetheless, show a dearth of classmates headed into private equity and venture capital (only 2%).  The small percentage stands out because many go to business school with expressed interests (and great enthusiasm) about private equity and venture capital. The numbers might reflect the scarcity of opportunity in such a fiercely competitive segment and the unorthodox ways some of these firms recruit.  (Blackstone and Carlyle may recruit at top business schools across the country, but Silicon Valley venture-capital firms may recruit informally or prefer to recruit only from across the street at Stanford).

The latest statistics may also reflect the lack of opportunities on trading desks at big banks, which have had to scale back because of new regulation.  MBA graduates interested sales and trading nowadays don’t have the chance to work in structured career pathways at a Credit Suisse or JPMorgan and will likely look for opportunities, if they exist, at hedge funds, many of which struggled last year and may not be swarming business schools this year. Some students interested in sales and trading can seek similar opportunities at investment managers (Blackrock, e.g.).

Tuck’s statistics show first-year compensation in finance hasn’t fallen into a sinkhole. But the range is as wide as ever, partly because the impressive, mind-shaking salaries and bonuses have been paid out primarily at the bulge-bracket and boutique banks in financial centers (New York, Chicago, San Francisco), and not always at the smaller, regional institutions. 

Still, in a post-crisis era, compensation doesn’t seem to always drive MBA graduates’ career decisions. Indeed these are different times. MBA graduates know the time they spend at Bank of America, Aetna, or UBS right out of school won't last decades. Furthermore, they seek flexibility and a life on weekends or seek some comfort that when the next crisis occurs, they won’t appear on a bank’s long reduction-in-force list.

Tracy Williams

See also:

CFN:  Are MBA's turned off by investment banking? Oct-2012 CFN:  Who's headed into finance, 2012? June-2012 CFN:  MBA job-hunting: No need to panic yet, Feb-2012
CFN:  Who's headed into finance, 2013? June-2013
CFN:  MBA's: Eye on summer '14, Nov-2013
CFN:  Where do you want to work? Feb-2013
CFN:  Today's bulge brackets, Jan-2013
CFN:  Goldman tweaks the banking ladder, Sept-2012

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

Is the MBA under attack, too?

The MBA: Evolving and Adapting

Press reports in the past year have occasionally announced the dismal state of the law degree. They've shown the downward trends in law school applications and the widespread lack of opportunities for new law graduates. And there is a lively, fiery debate about what is and what should be a legal education. A law student spends three years in school and, after assuming huge debt loads and making boundless financial sacrifices, graduates into the great unknown.

Should she head for the dungeons of corporate law? Should he explore other channels (the public sector, e.g.), where limited opportunities for sustained employment exist? What should they do, when legal positions have dwindled in large numbers across the country in recent years? Should law schools take the lead in assisting their graduates? (Some have done just that in the past year, by hiring some of their own graduates or subsidizing them in their first-year jobs.) Should law schools spearhead a radical change in legal education by eliminating the third year of classes and permit students to launch careers with one less year of burdensome debt?

Law deans, judges, attorneys, prospective students and law professors are in the midst of a vigorous discussion about the future of the law degree and the roles and responsibilities law schools will have. (See Third-year Overhaul at NYU, Law Schools Worth the Money?)


Is the MBA similarly under attack and similarly encountering a dismal outlook? Are there similar declines in applications (to business school), decreasing opportunities across the board, and calls to contract two years of full-time business school into a fast-track, 10-12-month degree?

Or is this an apples-and-oranges debate?

Trends in applications and enrollment at law schools and business schools run along different, sometimes similar tracks. They are both affected by various factors--some the same, others very different.  While law schools experienced application declines over the past decade, business schools did so, too.  The recession and financial crisis had impact on both. Yet applications at some business schools began to rise a year or two after the peak crisis years of 2008-09, partly because some young professionals decided to try to "wait out" those years of turmoil in productive ways, by returning to school.

Both degrees are influenced by stark business factors. Banks, insurance companies, and hedge funds reduce staff quickly (and often rashly) when there is a decline in revenues, deal flow or clients. Law firms  experience a concurrent decline, too, and reduce staff or decide to hire fewer associates.  And reductions, lay-offs and bleak opportunities discourage prospects from applying to law and business schools. 

Both are influenced by the mind-boggling, irrational increases in tuition and fees.  Candidates for the MBA or JD will often have the interest, aptitude and time commitment. They will dream of coursework in legal theory, contracts, property, accounting, corporate finance or business policy. They will aspire to become partners in corporate law firms or consulting firms. But they can't rationalize the costs and the likely absorption of too much debt.  

But factors that influence financial institutions--like reform and regulation--might have a different kind of impact on law firms, which might step up to assist in regulatory compliance. Other factors--like a trend for companies to out-source basic legal chores to low-cost sites overseas-- have a detrimental impact on corporate law firms in the U.S.

Still, the swirl of nerves and a trace of panic that might be usurping some law deans doesn't yet seem to be doing the same in business schools. That might be partly due to the fact that business deans are accustomed to change and almost always encounter uncertainty about their purposes in the future.

MBA application trends at top schools slid significantly in the crisis years, but in the past year or so, there are fleeting signs of an upturn.  Consortium school UCLA, for example, had a 22% increase in MBA applications last year.  After a two-year decline, applications to Stanford Business School rose this year. (They fell below 7,000, but are approaching that magic threshold again.)

Two years ago, applications to Columbia Business School fell 19%--a cause for concern and something the school blamed on the languishing state of Wall Street, since the school has always had a bustling pipeline of MBAs going into banking and finance.  Yet applications rose 9% last year and seem to be on an upward trend again (above 6,000)--thanks in part to a more settled state on the Street. Applications at Consortium school Dartmouth have increased the past two years, and Consortium school Yale will likely boost applications above 3,000 as it moves into a new facility.

Recent reports show over 286,000 GMAT tests were scored last year--an 11% increase. That's partly attributed to the large number of foreign students interested in the MBA (16% increase).  In fact, only a third of the tests taken are from U.S.-based candidates, proving how the soaring interest from international students has helped to boost or sustain interest in the MBA.

However, a few other factors might explain why the MBA is not yet under attack any more than it has always been:

1.  Law schools, all of a sudden, find they must explore ways to reinvent themselves or redefine legal education.  Business schools, on the other hand, over the past two decades have routinely tried to reinvent, redefine and innovate--some more successfully than others, some more radically than others.  Many contend business schools still haven't kept up with the changing business times sufficiently, but few accuse them of not trying.

Witness the changes in curriculum and core courses at top schools every other year. Witness, too, how schools hopped at the chance to understand e-commerce and Internet businesses. Notice the grand push by the same schools to require international experience and courses in ethics, decision-making, and risk management. 

2.  Certain industry sectors still require the MBA degree as if it were a certification. They see specific value in the MBA and hire from the business-school pool routinely each year.  They include consulting, investment banking, and many firms in investment management, trading and research.  As long as Goldman Sachs and McKinsey thrive, it appears, they will a large batch of MBAs from top schools year after year to fill the ranks and to offset expected attrition. And as long as Goldman and McKinsey hire, others in the industry will follow suit. 

3.  Business schools try to respond to economic and business trends and to the voice of a large corporate constituency.  They listen to what business cycles suggest or what business leaders look for in a next generation of leaders.  They respond by revamping curriculum, introducing new courses in, say, entrepreneurship or international development, or by teaching the lessons learned from a recent crisis or marketing debacle. Some respond well; some respond inadequately, but most try.

4.  The influx of foreign students has changed the face of most top schools.  It's no longer unusual for top schools to have large numbers of students from India, China, Pakistan, Nigeria and Latin America.  They recruit internationals, and they have successfully rationalized the benefit of a diverse, world-oriented student body.

Foreign countries have been eager to send some high-potential junior managers to MBA schools like Virginia, Michigan or USC to learn from the gurus of management and finance--with hopes they will return to their home countries to fill the management gaps of a growing, developing economy.  Many have observed or written about China's obsession speed up economic develop by hiring trained middle managers to run an exploding (at least until recently) business growth. An MBA education, especially from a U.S.-based school, provides a solution or a quick fix.

If the topic is business schools and MBAs, there will always be debate about the relevance of MBA degrees and uncertainty about how schools encounter evolving business scenarios. Seldom a day goes by without a business-school dean grappling hard with how the school will adapt and fend itself from the factions who attack it.

Tracy Williams

See also:

CFN: The MBA--Remaining Relevant, 2011

Are MBAs turned off to Investment Banking?

In the past two weeks, national media outlets hopped on a storyline, proclaiming that MBA students and graduates in finance have reached a boiling point of discouragement in investment banking and other activities in financial services.  The Financial Times and CNBC reported last week that MBAs at top schools are somewhat turned off to investment banking as a long-term career, at least based on hiring patterns the past few years. Yahoo reported similar trends last week.

The Financial Times reported the dimming in popularity of banking and finance in Wharton's recent MBA classes.  In the past three years, the percentage of graduates entering banking has declined from 25% in 2008 to 16% in 2011.  At Harvard, MBAs choosing banking declined from 10% of its class to 7%.

Are MBAs turned off? Or are they scared off? Are they turning away, or are they looking more closely at alternatives--like consulting and entrepreneurship?  Is there a campus backlash toward the industry? Or has the industry done a poor job of attracting and retaining graduates? Are the numbers a misrepresentation of what might be occurring--that banks have become imprecise, whimsical and peculiar in their hiring processes?

The general consensus among students, graduates and perhaps deans and faculty is likely this:  MBAs are not necessarily turning away from investment banking, as much as they might be fatigued at the industry's not being able to determine where it is going from here.

Faced with regulation, reform and not an inkling's notion of new sources of stable revenues, the industry has wavered in recruiting, hiring, development and retention. Discouraged MBAs are likely turning to other industries that can at least promise with some conviction a career path, upward mobility, a healthy environment, and--to say the least--a job for the next 3-5 years.

Each year, including at Consortium schools, thousands of new MBA students declare a possible interest in investment banking. As they learn more about industry uncertainty, they pay attention to exciting appeals from other industries. Little by little, they turn elsewhere--to industrial companies, to start-ups, to consumer companies, or to consulting.

Consulting continues to be a popular alternative, even while consulting and investment banking share common experiences--long hours, project orientation, client immersion, tight deadlines, industry specialization, compensation tied to incentives, prestige, and demanding clients. The consulting firms, it seems, have been more successful in recent years in offering a more defined, more predictable, and more certain career opportunity.

Investment banks, no doubt, have little problem in filling needs from year to year at all levels. At least the current needs for the moment. The positions become open, and supply of professionals always exceeds demand. When they huddle among themselves, industry leaders worry, however, whether they are attracting the best and brightest in finance, capital markets, financial analysis, and client management. In soaring times in the 1990s and mid-2000s, investment banking could lure those who might otherwise have been at the top of their fields in physics, astronomy, mathematics or law. Are the top banks now surrendering the creme de la creme to the payrolls at McKinsey or Booz Allen or to Kleiner Perkins, Google, Apple, Citadel, or John Deere?

MBA students and recent graduates who genuinely have an interest in banking wonder whether banks are taking the right steps, beyond lavish receptions and fly-backs to New York City, to improve the environment in investment banking? Are they focusing properly on the development of younger bankers and providing an environment to promote longer career stints? Have banks gone beyond the familiar mindset of hiring associates in large, flowing numbers when there is increased deal flow, only to dismiss them in waves when there is a hint of a downturn, with hardly a care about what they can do to help associates learn, improve, dissect markets, manage clients and prepare for a career of 10-plus years?

Many students and recent graduates don't necessarily think so. And that might be reflected in the recent trends.

What are other factors discouraging them from chasing after investment banking with the same passion and enthusiasm MBAs did only a few years ago?

1.   Uncertainty and risks in choosing this career path. This has been discussed and hashed out often. MBAs who must invest tens of thousands in graduate education, beyond the opportunity costs from leaving current positions, are not sure they want to take the risk in going into banking roles, only to be dismissed less than two years later when a downturn of any kind threatens.

2.  Work environment and work culture.  The stories of the lifestyle of an investment or corporate banker are legendary--80-100-hour work weeks, little flexibility in schedules and weekends, and indifference to the contributions analysts and associates make.  The industry always promises to improve the culture and make it more humane.  The gestures in the short term are applauded; however, there is a long-term reluctance to change the environment. The pressure to generate revenues from an uncertain flow of deals supersedes the importance of tending to the day-to-day environment of associates.

3.  A LIFO approach to managing personnel numbers.  An ugly tradition of investment banking is to  beef up hiring when the going is good and to reduce staff in droves when there lies a looming threat to deal flow or incentive compensation.  Notwithstanding the performance and potential of analysts and associates, senior managers tend to take a LIFO approach--"last in, first out"--when orders from upstairs require staff reduction. MBAs are astute enough to know this practice might continue and wise enough to decide they may not want to be subject to it.

4.  The relentless banter about re-engineering and restructuring in the industry. Since the financial crisis and in the midst of Dodd-Frank and Basel III reform, investment and corporate banking is evolving. Some contend a major overhaul is under way or about to happen.  For new MBAs, there is continuing specter that drastic structural change is under way in how deals are done, how groups are formed, how clients are managed and how people are paid. MBAs may not be sure they want to launch careers when the industry is in the midst of soul-searching.

The numbers reflect souring sentiments. However, rest assured, at top schools there continues to be a core of students and graduates interested in corporate finance for finance's sake, not for the sake of what the industry always awarded--prestige, travel, headlines from deals, and lucrative bonuses. These are the MBA students and graduates who pursue banking because of the lure of the deal, the appeal of market activity, and the thrill of finding and delivering financial solutions to Fortune 500 companies.

They are the ones who withstand the ills of the environment and culture and see investment banking as a process of building crucial finance skills and experiences for the long, long career haul. They endure both the good and bad, appreciating newfound knowledge and understanding of markets. The declining trend is not yet alarming to banks, because supply is still steps ahead of demand and because hard-core finance graduates seem to always navigate their ways toward banking.

Tracy Williams

See also:

CFN--Investment banking vs. private banking, 2009
CFN--Is investment banking still hot?  2011
CFN--What about corporate banking? 2010
CFN--Who's heading into finance?  2012

Goldman Tweaks Banking's Ladder

Goldman Sachs leads; everybody else follows. Or most everybody else. So it has been for the past couple of decades in how corporate and investment banks structure themselves and recruit, develop, promote and pay for talent. And so it has been in how banks--from Goldman to regional banks involved in corporate banking and foreign banks that set themselves up on American shores--organize banking units.

Traditionally since the 1980s, most corporate and investment banks (including also their trading, cash-management and processing units) recruit finance professionals into the following "programs," "classes" or "levels":

1. Analysts (those with BA or BS degrees) who join a two-three-year program and who virtually learn from scratch financial analysis, accounting, capital markets and banking on the job, while toiling away long hours doing the dirtiest of work for banking teams (spreadsheets, analysis, projections, document preparation, document printing, research, and, yes, mundane errands for managing directors). They often embark on the role without a clue.  To their credit by the end of the first year, many become somewhat astute about accounting, corporate firm valuation, cash-flow analysis, financial projections and the required regulatory steps to issue new corporate bonds.

2.  Associates (those with MBA degrees or analysts who have been promoted to the associate position) who have substantially more responsibility and more client contact and who are expected to have mastered nuances in corporate finance, capital markets and client industries. They come with experience, maturity and ambition. Some were top-rated analysts at banks before they retreated to Wharton, Darden, or Tuck to polish their understanding of finance and markets. They learn quickly that first year that banking is brutal business, not an academic pursuit.

3.  Vice Presidents who are promoted after spending three-four years as associates and who have more management responsibility and greater access and input to client, deals, transactions, and revenue-generating activity. The pressure builds for them, because performance is tied not necessarily to an in-depth knowledge of markets, financial products and balance sheets, but to their ability to generate revenues and minimize risks.

And depending on the bank, fund, or institution:

4.  Executive Directors/Directors/Principals who have more senior roles in the management of client relationships, trading portfolios, and/or business units.

5.  Managing Directors/Partners who, besides having senior roles and significant decision-making responsibility, have extensive experience and a meaningful ownership stake (or simply own a lot of the stock). They are the ones who have spent practically half a career in the business and are known for their contacts, networks, client relationships, experience through hardships and downturns, and uncanny knowledge of just about anything they touch from day to day.

How and when people are promoted, paid and awarded bonuses have conventionally been determined by "market benchmarks."  But who sets that "benchmark"?

Often it is Goldman Sachs or occasionally one of its peer firms (JPMorgan, Citi, Morgan Stanley, Merrill Lynch, e.g.).  Sometimes it is set by the industry's efforts to ward off other competing finance sectors or industries.  For example, in the technology boom/bust of the early 2000s, banks felt threatened that dot-coms and other start-ups would seize their more talented recruits.  Some big banks even started a brief trend, as an added incentive, of permitting analysts and associates to invest in private-equity deals the bank had been involved in.  Banks regularly have reshaped, rejuggled and revamped development programs to attract analysts and associates who would otherwise be more interested in technology start-ups, hedge funds, venture-capital outfits, consulting or non-profits.

For years, however, banks have shown a tendency to copy or borrow the programs, titles, bonus payouts, perks and promotion standards of other banks.  Often it has been Goldman that started a trend or Goldman that raised the bar for base pay or bonus ranges.  Other banks--with the help of industry compensation experts and professional recruiters--would peek and try to match the "market" (the market set by Goldman) or at least come somewhat close to it.

That would explain, for example, why compensation offers at most of the top banks, funds, and institutions tend to follow similar trends and tend to be quite similar in amount or package content. If Goldman decides, as it has done so in the past, that MBA associates should be paid bonuses partially in common stock. Then others follow suit. If Goldman changes its mind, as it has done in the past (early 2000s), then others do, too.  Some call it copying; others call it competing to stay in the game.

So whenever Goldman makes a move and tweaks some part of the ladder, the industry watches, waits and then reacts.  Last week, it decided to change elements of its analyst program a wee bit.  The change, announced in the Wall Street Journal, will have a trickling effect on other corporate and investment banks.

The change was not major; it was a modification, not an overhaul of the program. But because it was Goldman, it will be discussed, examined and probably duplicated by others.  It decided not to hire analysts on a contract basis for two years and not to guarantee a base level compensation during that period.  Analysts, therefore, can be dismissed for non-performance, and on the way out, they will not be awarded a thanks-for-your-services bonus.  While on paper or in concept this doesn't appear to have any impact on corporate or investment banking, because it's Goldman, it's news.

What does it all mean anyway?

The bigger story may be that Goldman, like all banks, continues to be under burdensome pressure to manage costs when banking activity is annoyingly volatile and the industry is under siege from regulators and the public. One incremental way to manage banking-personnel costs is to start at the bottom:  Don't hand out gobs of cash to under-performing or disinterested financial analysts, some of whom aren't interested in long-term careers at Goldman anyway and have an eye on applying to business school or joining a Greenwich-based hedge fund.

One immediate effect on the young graduates is that the tweaks will make the tough, grinding, difficult role of an analyst even tougher. The life of the banking analyst is one of 80-100-hour work-weeks, a grueling physical existence where one is on call all the time, even on weekend evenings.  But the pay-offs were always an extraordinary bonus payment, a modicum of prestige, and the opportunity to learn massive amounts of corporate finance and capital markets almost overnight. Goldman's tweak adds pressure. Analysts now won't have the luxury of failing or slipping up, as they (right out of school) adjust to deals, markets, spreadsheets, analysis, research, irascible vice presidents, and merely the real world in general.

Another implication is that if banks tweak the analysts program, they could easily tweak the MBA associates program next. Behind closed doors right now, senior bank managers might be huddling to decide how to manage the costs of another class of new associates from top business schools. They could agree to compensate the new bankers and traders handsomely (as they have always done), but they could decide they must reorganize the program (including compensations and performance expectations) to limit overall costs in other ways:  dismiss "under-performing" associates sooner, reduce the number of associates who are on track to become vice presidents, or offer compensation packages of greater portions of restricted stock. The senior bankers could also decide to encourage associates who perform adequately, but whose hearts aren't in it, to leave.

In its lofty role of setting industry standards and setting the "market" for compensation and promotion, Goldman knows by now its incremental steps will probably be copied.  It's not only Morgan Stanley that might follow suit, but the modest-size boutiques, the regional corporate banks, or the West Coast investment-management firm, too, will adjust.

Many say the roles, compensation and lure of corporate and investment bankers have hardly changed in the past several years. But with these kinds of tweaks and revisions, that new day could be dawning.

Tracy Williams

See also:

CFN:  Forced Ranking:  Does it hurt? July-2012
CFN:  The Dreaded Performance Review--2011
CFN:  Becoming a Top Performer--2009
CFN:  Is I-banking still Hot?--2011
CFN:  How Does Goldman Do It?--2010
CFN:  Mastering Technical Skills in Banking--2010

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

Who's Heading into Finance, 2012?

Over 85 Consortium first-year MBAs this year indicated an interest in finance or financial services. That is within the range of what CFN has observed over the past four years--typically a range from 80-90, about a quarter of the total number of Consortium first-year MBA students in 2012.

In the aftermath of the financial crisis and amidst the occasional turbulence since then, many would swear the numbers of those expressing interest in finance would have declined over the years. MBA students, we are finding out, continue to have varying levels of interest in financial services. But most of them are less eager to rush to Wall Street to become associates in mergers & acquisitions at a big bank. The opportunities they dreamed of while applying are not always evident when recruiting season starts. And some, after they learn the process and procedures to secure Wall Street jobs, are reluctant to play the hard ball it sometimes takes to get there:  lotteries, informational interviews, technical interviews, and rounds and rounds of sweltering sessions with senior bankers. 

That's not to say Consortium MBAs aren't adequately represented on Wall Street. Year after year, many do find spots within the investment-banking corridors of Goldman Sachs, Merrill Lynch, Barclays, and JPMorgan. They thrive there, too.

Among the 85 or so, interests this year, as in recent years, vary from private equity to community banking, real estate (yes, even after that debacle in recent years), corporate banking, financial consulting, private banking, asset management and energy finance. MBA students in finance in 2012 know they must evaluate opportunities carefully and always make sure they have plenty of options. The recruiting game changes too often, too quickly and too vigorously. Not even the best, most experienced MBA students can become too confident or comfortable.

In this year's first-year class, it's no surprise that 14 from NYU-Stern will explore finance. But NYU is not the finance leader this year, as it tends to be among Consortium classes. At Cornell, 16 have expressed an interest in finance, eight at Rochester, and five each at Yale, Virginia, and Emory. (At least two from each of the 17 Consortium schools said they intended to study, explore or pursue finance.)

These numbers will likely change, just as students' interests and ambitions change. Opportunities in 2013 and how they present themselves this fall will either boost these numbers or cause them to dwindle. Seemingly remote factors as Europe in crisis and a presidential election, believe it or not, can have a direct impact on how many MBA associates banks, insurance companies and industrial companies will hire for the summer, 2013. How students survive finance, accounting and capital markets courses will have impact, too.  The 85 could blossom to 100 or dwindle to 60 by graduation, 2014.

The same numbers above often tend to be under-stated, as some students have many interests and may not yet be comfortable selecting one concentration before school starts.  These are the large numbers of MBA students interested, for example, in both finance and marketing, finance and economics, finance and corporate strategy, finance and international business.

Stay tuned, as students discover what they really want to be and do and as the finance industry evolves and rumbles along.

Tracy Williams

See also:

CFN:  The Class of 2012 Heads Out

CFN:  Composing the Class of 2014

CFN:  First-year MBAs, Internships, Class of 2013

CFN:  Finance Hiring in 2010

CFN:  Composing the Class of 2013

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Commencement, 2012: "Avoid Monday Decisions"

UVA Darden's Dean Bruner: "Moral Courage is an all-the-time thing."

Before they ventured into the land of consulting, banking, finance, and product management, MBA graduates sat through commencement--one last chance to gather noisily with classmates and then ponder what lies ahead.

They sat through an on-stage commotion of deans and queues of speakers--some from from the highest rungs of business, some students like themselves. What parting words did they hear?  What taps on the back did they receive, as they set off beyond the campus cocoon?

In 2012 during the MBA graduation season, some themes are prevalent everywhere. Most graduating classes endure orations describing frail economic times and the responsibility they have to clean up the messes in the financial system or to assist others who face hardships.

MBA graduates are often admonished to seek achievement beyond the corporate bottom line: Don't just rush out of here, they are told, to join a 10-year race to accumulate titles, prestige and net worth. Contribute to the community, speakers advise--including speakers who have accumulated titles, prestige and net worth in bundles. Appreciate the support of family, and be mindful of others, as you make the arduous journey to senior management.  Take a breather along the way, too.


Some graduates are offered a dare: Dare to be different. Look beyond Wall Street. Start a company. Work in manufacturing. Spend time on the operations floor. Take an assignment abroad. Dabble in non-profit activity. All graduates are reminded to keep their addresses up to date and make yearly contributions to the b-school fund.

Consortium business schools, just like the rest, welcomed speakers to tell them something they may recall years later or share one last parting bit of advice, wisdom, or funny, leg-shaking one-liner.

At Consortium school Berkeley-Haas, the CEO of Adobe, Shantanu Narayen spoke to the MBA graduates.  Students, especially those with interests in finance and accounting, had been buried in finance models, spreadsheets, balance sheets and cash-flow statements the past two years. He knew that. But at the podium, he spoke about how the answers are not always in the spreadsheets, the numbers, or the financial ratios--no matter how useful the tools are.  He reminded them to "trust their gut," not the numbers, when they confront tough business, personal, and career-related decisions.

Steve Roth, a Tuck alumnus and now the chairman of  Vornado Realty Trust, spoke to Dartmouth's MBA graduates.  He skipped some conventional commencement platitudes and provided a laundry list of astute, wise-beyond-years business advice. At the Tuck Graduation, he told the graduates to do the following:  (a) Avoid making major decisions on Mondays, (b) be mathematical in analyzing businesses, and (c) access the bond market and interest rates more than equity markets in assessing the economy.

"My career was marked by a few really good decisions," Roth said. "That's all it takes, three or four
good calls in a lifetime."  Many graduates hoped the first good call might have been their decision to return to school for the MBA.

Yale's new dean of its School of Management, Edward Snyder, spoke to the Class of '12. Few careers, he reminded them, will follow "straight lines."  Snyder is in his first year after leaving the business school, Booth, at the University of Chicago.


Yale MBA grad Dan Magliocco received the honor to speak to his classmates. "We've been taught that transparency is better than secrecy, and alliances are better than enemies," he said "It forms the backbone for a smarter way to compete. It's our greatest advantage."


Virginia-Darden's MBA ceremony was marred by rain. Its dean, Robert Bruner, avoided a lengthy speech as graduates dodged the threat of pelting rain. He posted his speech on "Moral Courage" in his own blog. "Moral courage is not a sometime thing," he wrote. "It's an all-the-time thing. You acquire moral courage by doing it. Moral courage is like physical conditioning. You must work at maintaining it.

"I wish you moral courage to get after the problems that really matter, whether they be in your companies, your communities or your nations," he told the Class of '12. "Whether you succeed or fail, make us proud of your efforts."

Robert Zlotnick, the CEO of StarTex Power, spoke to the MBA grads at Texas-McCombs. Zlotnick told them they should plan life with the same vigor they do in a business setting (in a deal, a project, a branch expansion, an analysis, or presentation to board members).  He urged graduates to have a strategic life plan that encompassed family, life, career, community service and health. "In a sense, I planned how I wanted my obituary to ready," he said.  "You should treat your life as an entrepreneurial venture."

At Cornell Johnson,  Dean L. Joseph Johnson told the assembled group of MBA graduates, "Go out into this messy world and manage that privilege with integrity and purpose."

From b-school campus at Berkeley to Tuck and from Michigan to Texas, what did MBA grads actually hear and absorb, as they jostled in their seats, in the rain in some places, in searing heat in others? Wonder confidently into the messy world, dare to be different, expect non-linear career trails, trust your gut, maintain moral strength and courage, have a plan for life, write the check annually, and, yes, please don't make big decisions on a Monday after a long weekend. 

Tracy Williams

"Where Was the Risk-Management Unit?"

Once the world of finance (and the world beyond, too) learned about JPMorgan's earth-shaking $2 billion-plus trading loss from credit derivatives, the finger-pointing and the blame-gaming started.  Where were the risk-management units? How and why weren't the risks of these large positions properly managed? How could what began as efforts to manage credit risks with portfolio hedges end up as shocking market losses and a three-headed monster out of control?

In financial institutions, in stable times, when profit engines hum and business is brisk,  risk-management units remain quietly out of view. They aren't glamor-seeking or aren't permitted to be. You won't see risk-management "stars," as much as you do among the deal-doers in investment banking, particularly in M&A, venture capital or private equity.

Nonetheless, if they are doing their job, senior managers in risk management in normal times are as busy as ever. They touch all aspects of the institution's business. They are charged with managing risks of all kinds--including those related to exposures, counter-parties, borrowers, portfolios, trading positions, and balance sheets.

They are also responsible for anticipating unforeseen risks, "tail" or unexpected scenarios, or even catastrophic events. They must unveil plans to manage these scenarios. They must implement programs or procedures to reduce or minimize existing risks (positions, exposures, borrowings, etc.), if they conclude it is necessary.

When you read about a financial institution involved in a big deal, large transaction, an IPO, or a notable underwriting or learn about its revenue increases, new clients, and expansion to foreign sites, risk-management units are hardly mentioned, even if they are intimately involved in reviewing and approving all such business activity. On the other hand, when you hear about the sudden losses at or demise of such institutions as Washington Mutual, Lehman Brothers, or Bear Stearns, everybody--from pundits to regulators--asks, "Where was the risk-management unit?

"Why couldn't it have prevented the collapse or loss? Who approved the transaction, trade, client, counter-party, or deal? Why didn't it reduce the portfolio of loans or hedge the trading positions or notice the operations hiccups or problems in the documentation?"

Often in these upsetting moments, risk management becomes the scapegoat, and the problems, errors or flaws tend to be related to one or more among the following:

1) Lack of sufficient authority to enforce policies, procedures, limits, and approvals, because risk managers aren't empowered to hold the line with investment and corporate bankers, salesmen and traders.

2) Lack of proper information or delays in sharing details about borrowers, trading positions, balance sheets, and risk exposures (sometimes caused by a reluctance of business lines to admit to errors in judgment or by problems in systems in collecting and summarizing information quickly)

Risk-management units in many places sometimes spend as much time gathering data about clients and trades, ensuring the information is correct and up to date, as they do in analyzing counter-parties, markets, exposures, and portfolios and making the right decisions.

3) Inability to anticipate unforeseen or unusual risks, because of lack of understanding of markets and borrowers, because of too-complex trading and risk models, or the naive conviction that the worst cases won't happen.

4) Over-reliance on complex risk models, familiar techniques and conventional approaches. A reluctance to assess risky scenarios in new, unconventional, more appropriate ways.

5) Inability to quantify the true, actual scope of risks because of flaws or failures in some of the above and in information and analysis. Risk managers may not know the exposure, loan, or trade is as large as it is, because they can't quantify it properly.

6) Neglect because certain risks or risk functions were not prioritized, checked or given proper attention. Risk managers put the issue on the shelf and dismiss it until it is too late--after the big trading loss or after the client files for bankruptcy. 

7)  Errors in judgment, caused by inherent biases in decision-making or conflicts of interests. Risk managers are not able to assert themselves (and make decisions) independently because they are "trying to help" business and marketing managers achieve profit goals or are also trying to maximize revenues, returns and profits to get a share of bonuses.

8) Fraud

At Lehman and Bear Stearns, risk managers weren't empowered or authorized to hold up the stop sign or call time out when their balance sheets grew to excessive levels of leverage or piled on too much in mortgage-related assets. Or risk managers, too, were delusional in their perception of mortgage markets or what they deemed were adequate levels of capital.  Refco, the futures and commodities firm that went bankrupt in 2005, was a victim of accounting fraud by one of its own senior managers.  At AIG, risk managers didn't have control over the activities of its financial-products subsidiary and made blatant errors in the analysis of mortgage-related risks.

At Merrill Lynch, we learned, risk managers simply lacked authority to control undisciplined trading activity.  At Long Term Capital, traders acted also as risk managers and stubbornly believed in their models ("relative-value trading") without acknowledging the worst-case scenarios or "tail" events.  At JPMorgan, it's too early draw conclusions. Risk managers, we know now, attempted to manage other portfolio risks. But it elected to use complex trades. In the process, overall risks spiraled out of control, partly because they didn't project extreme cases in the credit-derivatives markets.

The risk-management function at large financial institutions has evolved in many ways the past two decades.  Once, risk management at banks and broker/dealers meant credit analysis, credit approvals, and reviews of counter-parties. Somewhere along the way (the early 1990s perhaps), risk management assumed responsibilities for credit and loan portfolios, trading-related counter-parties, collateral risks, country and political risks, and all forms of market risk from trading positions.

Today, at the largest institutions, risk management's domain is as expansive as the organization's business--touching almost all functions and expanding to all regions and businesses.  In recent years, experts say risk managers must approach the role as "managers of enterprise risk" (the entire organization and all its functions), not just isolated credit and market risks in certain business areas.

Risk managers today and going forward will be asked to oversee, analyze, project, manage and reduce (if necessary) risks related to the following.

1) Credit and counter-party risks, which include the risks of lending money, doing any kind of business with corporations, individuals and government entities, and executing and maintaining securities and derivatives trades with the same. This includes long- and short-term risks, collateralized and unsecured risks. 

2) Market risks, which include all forms of risks from trading and/or maintaining positions in all securities and derivatives transactions. This includes risks from positions related to market-making, brokerage, specialist, clearing, and proprietary-trading activities. And it includes long- and short-term trades or mere settlement or clearing activity.

3) Operations, systems, and processing risks, which include risks arising from executing trades, doing money transfers, collecting and sending out data, processing and clearing securities, accepting and holding collateral, and systems glitches.

4) Documentation, regulatory and compliance risks, which include all risks tied to legal and regulatory issues and the documentation behind all business activity.

5) Reputation risks, which was popularly added to the lists of risk management's responsibilities the past decade and includes reputation issues that arise from doing business with questionable clients or in certain areas around the world or doing business in a questionable way.

6) Country and political risks, which include risks in conducting businesses in certain countries and geographic regions.

7) Collateral risks, which include risks of accepting certain types of collateral in transactions (including securities, cash, and hard assets) and risks that the collateral is under-valued or not transferable in certain cases.

Risk-management units juggle all of these responsibilities, try as hard as they can to grasp, scope and quantify these risks, do all they can to project and anticipate worst cases, and are expected to have a plan for how to manage and reduce them. Miracle workers, some say, who must also have a solution, a game plan, an alternative, or simply a way out.

Over the past two decades from Drexel Burnham to Washington Mutual, we've seen it all, or always thought we saw it all, until the next shocking loss by another big institution.  But through it all, while fingers pointed directly to risk managers, the role of risk management always emerged as important as ever.

Tracy Williams

See also CFN: Dimon and Bank Regulation, May 2012

CFN:  Risk Management: Opportunities in 2012

CFN:  Risk Management and MF Global's Demise, 2011 

MBA Job-Hunting: No Need to Panic Yet

On campus, the hiring process is not quite over.

For some MBA students, including those in Consortium schools, whether in their first year or about to graduate, February's arrival could cause panic:  Do I have significant job offers on the table?  Will I spend the summer at my first choice--proving myself in a formal internship program that will lead to a full-time offer in August?  Or must I resort to the only choice I have? Must I return to an old job I wanted to leave in the first place?  If graduation looms, do I settle for the first offer available, or do I wait for my dream post?

When February comes, some students beam and boast of offers from top-tier financial institutions, consulting firms, or big corporations. Some have already accepted offers. Others, without the offers or opportunities they covet, grow worried and try to figure out what to do with composure and a new strategy in mind. 

There's no need to panic just yet.  Buckle down. This is the time many gripe about campus career and placement services. These departments try to provide pathways from the classroom to corporate cubicles and conference rooms. They suffer, however, much criticism at schools everywhere. 

They operate under pressure to be all things to all students.  Deans watch them and push them to show the highest percentages possible of graduates finding jobs that pay the highest salaries possible.  In February, when they wish they could provide candid, thoughtful guidance on next steps for overworked, pressured students, they get mired in hiring statistics.  Take the first job offered at the highest compensation, they might advise unwittingly and without much thought.

For students still planning a summer or a first year beyond school, buckle down, and work with networks and alumni ties.  Reach out to alumni, professor and/or social contacts--at all levels. Most top firms, funds, banks and companies, where MBAs want to work, have already concluded the hiring cycle for 2012.  Students learn it is probably too late to seek employment at those places.  

But don't give up just yet.  Alumni and network contacts can alert you to what the real story is.  The hiring cycle has just ended, but there could be alternative ways to find an entrance through the backdoor.  

At the notable financial institutions, MBAs are hired for formal programs. But sometimes specific business groups with the larger company have sudden, special business needs. Human Resources may have under-counted the number of interns or first-year associates needed in the coming year. They misinterpreted the incremental work for new presentations, deals, clients, and finance models.  Business units will not want to wait for the next hiring cycle a year later; they seek to fill hiring gaps as soon as possible. 

In such scenarios, the institution will encourage the business unit to hire from within or look for someone willing to transfer into the unit.  Sometimes, however, the unit will head to campus to seek help or tap the MBA student who persevered and came through the backdoor. 

In the meantime, if the ideal offer hasn't come yet, now might be one more chance to review, refine and polish the story you are presenting to prospective employees. Make sure you convey a unique or intriguing story that shows how the finance MBA and past accomplishments translate smoothly into what you want to do, how a polished resume' will lead to immediate contributions in an entry position. 



The story you told before might indeed have been near perfect in your view; prospective employees might even agree.  But it may not have been for what they needed for the moment. Sometimes revising or re-engineering the story is an effective way of proving not just competence, but fit. 

Reach out to alumni at the places on your wish list, especially alumni who were in the same programs or management tracks you are pursuing. Touch bases even with first- or second-year alumni,  those who have recently gone through the process. They won't be involved in hiring strategies and decisions, but they are the ones who can share intelligence of hiring trends, hiring practices and strategies. They know which units are hiring, cutting back, or expanding abroad. Having been through the process, many don't mind sharing details of how they got through it or how they slipped through back, if that was necessary. 
 
Now is also the time to peek at Plan B and realize that Plan B may not be as bad as you initially thought.  Approach Plan B as if it were a stepping stone back to Plan A. You might find, in the process, that Plan A was wrapped in the wrong reasons to pursue a position (prestige, incentive compensation, amenities, e.g.).  Plan B might actually encompass the rational reasons (experience, exposure, skills refinement, immediate contributions, e.g.).

Explore carefully opportunities you might have dismissed early in the process. They may be at smaller companies, boutiques, or funds.  They could be in regions outside of the usual finance centers. They may be in industries (manufacturing, technology, communications, or energy) you hadn't discovered before, but where roles in finance, strategy, capital markets and M&A are still critical. 

If you pursue opportunities off the beaten path and are successful, negotiate an experience or role that will emphasize financial analysis, corporate finance, modeling, finance strategy, and/or markets. A profound summer experience at a global company or a first assignment in strategy, treasury or markets can still become gems on a resume' down the road. 

Everywhere in recent weeks, we detect hints, signs and trends that the environment has improved. The known banks and institutions are tip-toeing through this hopeful, but fragile scenario--still hesitant to hire in large numbers, still not sure what they should do for the long-term. Yet in pockets or office corners in scattered places, an alumnus contact might let you know that in her group, they desperately need a smart MBA intern from, say, Cornell, Virginia, Rochester, or Emory to help on a current deal, portfolio review, or strategy presentation.


Tracy Williams