Financial Technology: New Opportunities?

Axial is but one example of a new financial-technology firm

Not everybody with the buzz of an idea is seeking to start a company that will disrupt the world via social media.  Many are running new businesses by exploiting new technology---using technology to do old tricks, so to speak.  New businesses are using technology, for example, to assemble, analyze and interpret data or to deliver product to consumers in novel ways.

In finance for over a decade, some companies have sprouted from scratch and used technology in clever ways to provide new services, new analytics, or new ways of doing financial transactions or providing financial analysis, advice, or processing.  And we aren't necessarily talking about technology being used to ignite explosive high-frequency, black-box trading in equity markets.

Some of these financial-technology start-ups have come and gone or been acquired by large established institutions. Some have thrived.  And others were launched in the last few years and have just begun to take off with a critical mass of clients or customer activity.

In New York last month, a few new companies made presentations at a business-school networking function to explain to investors, bankers, and industry participants what hole they wish to plug in the industry and how technology does it.  Their ideas are off and running, the business model in place, and revenues trickling in and growing steadily.

Axial  is one example.  Years after getting his MBA from Stanford and working in private equity, Peter Lehrman started the company a few years ago because he thought there was a better way to help middle-market companies and entrepreneurs seek financing from banks and investors or seek M&A advice from investment banks and advisory firms.  The firm established an electronic network to connect companies with investors, advisers, banks, investment banks, and other financial institutions.

Lehrman calls his Axial network a "Linkedin" for mid-size companies and for the banks that seek to do business with them.  Members of the growing network purchase subscriptions (which explains its revenue model), get access companies in the network and exchange relevant data and information.  Companies can find the right match with a bank or private-equity investor.  Financial institutions can find the right match in seeking a company client.  They all get to become better acquainted with each other.

Today, there are about 15,000 members of the Axial network, including over 200 small companies and entrepreneurs. Axial, founded in 2010, is based in New York.

Is there a quicker, better way of taking voluminous amounts of financial data and prepare reports for investors and clients?  Is there a faster way for financial institutions to comb through hundreds (or thousands?) of pages of transactions and business data and prepare summary reports for regulators, investors or board members?

Narrative Science, a four-year-old company based in Chicago, says it has a solution. It has a patented artificial-intelligence platform (called "Quill") that digests and analyzes data and presents a summary in the form of written reports.  The platform provides many services, depending on a client's need.  Equity research analysts or financial consultants use it to prepare investment-portfolio reports or market updates. The company claims the platform doesn't just spit out verbiage, but provides insight, analysis, and trend forecasts. 

Reports can be formatted in the way clients prefer. They can also be as long, short, detailed or simple as desirable.  The company now has about 50 clients, most of whom are financial institutions.

Leigh Drogen decided to start his company, Estimize, when he saw an opportunity to aggregate vast amounts of information from equity research analysts who provide earnings forecasts for thousands of companies.  From quarter to quarter, equity analysts provide earnings estimates based on their own research.  They often update their forecasts during the quarter, right up until the company makes a formal earnings announcement.

Investors who rely on earnings forecasts and updates have had to aggregate by themselves the views, opinions and forecasts from dozens of analysts.  For example, investors with a stake in Microsoft stock will want to know how analysts assess the company and project its earnings and stock price. They might attempt to compile the numbers of many analysts. 

Estimize uses technology to do it faster and more easily.  It aggregates the projections and earnings estimates for about 900 companies, compiling information from over 3,500 analysts who send information to the firm. The firm presents a summary of the analysts' forecasts. In describing his firm, founder Drogen says it has an "orthogonal" (independent) approach to providing earnings estimates for companies and explained that the firm is "Wikipedia"-like in providing information to clients. 

Estimize also provides estimates or projections of macroeconomic factors (e.g., interest rates, economic growth), based also on aggregates from research analysts.

Hedge funds and fund investors comprise most of its client base now.  The company, three years old, has 10 employees and is based in New York and San Diego.

David Klein was once an MBA student at Wharton who borrowed money to fund his business-school education.  At some point after graduation, he decided there was a more efficient way for students to borrow.  He started his company, CommonBond, to transform the student-loan market especially after dysfunctions in this marketplace in recent years. Klein says the company is trying to "fix the broker student-loan market."

CommonBond created an electronic network to match students directly with lenders.  Klein claims this direct match-up helps lower interest costs to students.  Like an electronic stock market, the network allows market participants to link online.  The company also has a social mission by encouraging a "community" of lenders and borrowers:  Lenders follow the progress of students, and students form community networks among themselves and keep lenders informed about their school experiences. Lenders become more engaged in their investments.

In its first phase, CommonBond is only providing loans (from a current fund of about $100 million) to MBA students.  It will expand in its next phases to law and medical students.  Until now, most loans it has arranged via the network have been refinancings of other students' loans at competitive rates.

The company employs 13, but plans to expand to 22 by this summer.

Chaith Kondragunta's company AnalytixInsight is four years old.  He has an MBA from Carnegie Melon and is now CEO of the company he helped found four years ago.  The company uses technology to prepare research-analysis reports on 40,000 equity stocks around the world.  It labels its service Capital Cube and produces written analyses, based on data, statistics, and macro-trends.

For example, its technology gathers significant amount of data and financial information (including data available from company annual reports, 10-K's, etc.), assembles and analyzes the data for trends, computes relevant financial ratios, and then prepares a written financial analysis with useful conclusions and recommendations with minimal input from a human analyst.

Individual investors, brokerage firms, and some media firms have subscribed to the service. The company has offices in New York, Toronto and India. 

This group of five is just a few, a coast-to-coast sample. Many other financial-technology firms exist, covering special niches in the industry. And more will continue to be founded, as someone somewhere will determine that with technology advances there's a better, quicker, more efficient way to trade securities, research stock, raise equity, issue debt, share market information, prepare investment reports or provide strategic advice to companies.

Tracy Williams

See also:

CFN:  Knocking Down Doors in Venture Capital, 2012
CFN:  Venture Capital: Diversity Update, 2011
CFN:  High-frequency trading: What's next? 2012
CFN:  Dark days at Knight Capital, 2012
CFN:  Bitcoins:  Embrace or Beware? 2014

MBA Students: An Eye on Summer '14

CFN hosted its annual webinar to launch interview season

Most MBA students today, including Consortium students across the country, will argue there is no one segmented part of the calendar for "recruiting season."  Every aspect and experience of business school is "recruiting season," from the time students declare their intentions to attend a certain school until graduation. Every day, not just a few weeks in the fall, MBA students contemplate where they want to be and what they should do to secure the right job.

Students today, and their career-advisory specialists on campus, say there is seldom a time when an MBA student is not absorbed in thought about information interviews, mentors, alumni connections, career choices, or a specific post that awaits after graduation. Nonetheless, late fall usually signals the formal start of interviews:  information interviews,  first rounds, lottery interviews, interviews earned from being selected by companies, second rounds, technical interviews, and follow-up sessions to decide whether to accept an offer or go elsewhere.

The Consortium Finance Network hosted its third MBA recruiting webinar Nov. 13 for Consortium first-year MBA students to launch interview season for those interested in finance and financial services.  Panelists included Consortium graduates in a variety of finance roles, working for financial institutions and industrial, entertainment, and consumer-products companies. CFN steering-committee members, D-Lori Newsome-Pitts, Camilo Sandoval and Tracy Williams, moderated the presentation and subsequent discussion. Consortium students logged into the webinar from schools around the nation.

Panelists included Consortium alumni Abijah Nyong from Dow Chemical (Indiana-Kelley business school), Christina Guevara from Goldman Sachs (NYU-Stern), Stephanie Rosenkranz  from ESPN-Disney (USC-Marshall), and Brace Clement from Starbucks (Wisconsin). Some were recent graduates, fresh from the experience of going through the process. 

Nyong from Dow Chemical set the tone for the evening.  "When it comes to talent," he said, "good talent comes off the shelf.  Even if the business prognosis is not good, we take good talent."

To guide students, CFN presented a general recruiting outlook in several segments of finance. Opportunities in finance fluctuate and take assorted, unexpected turns from year to year.  In 2013-14, the outlook is generally upbeat, as banks, investment firms, and companies have become confident enough to open their doors for more MBAs.

But as most experienced finance professionals know well, it helps to be cautious, careful, and forewarned.  In finance, the tide and sentiment of recruiting can turn on a dime. Some years, companies hire more than they need. In other years, companies are sour on economic prospects and hire fewer than they should.  More than ever, however, financial institutions and companies are serious in hiring summer interns, since most hire interns with hopes of offering them full-time employment when the summer is over.

In corporate finance and corporate treasury, as the economy grows and improves, companies are growing and expanding and will, therefore, have financing needs and investment opportunities.

Nyong said companies like his employer are looking for outstanding candidates and are increasing hiring. "We want to ramp up to try to make sure good employees are in the pipeline."

In investment banking, whether it's M&A, FIG, real estate, energy or health care, all depends on the industry segment, expectations within that industry and general business trends. M&A, for example, had shown signs of starting to soar this summer, but experts now can't figure out why it stalls from time to time.

FIG investment banking has benefited from the capital requirements and restructuring initiatives of banks everywhere, in the wake new regulation and reforms. Equity finance is patting itself on the back after renewed confidence from IPOs (think Twitter) and investors' comfort in stocks.  Debt finance has been bolstered by low interest rates.

In private banking and wealth management, banks will continue to emphasize growth, because they like the fee-based businesses without having to build up their balance sheets.

"Banks have pushed to build out (in private banking) because of the sticky assets," Guevara said. "They are focused on growth."

In corporate banking, opportunities exist because big banks, which had swooned toward the high returns and headlines of investment banking, have learned to appreciate the stable returns and bread-and-butter benefits of corporate lending and cash management.

Sales & trading opportunities at financial institutions are limited, because regulation and reform will restrict what they can do--if not now, then over the next few years, as SEC and Dodd-Frank rules are written and become clear.

Banks everywhere have restructured trading desks and trading roles. The best opportunities, if any, for MBAs interested in trading will be at asset managers, boutiques, specialty trading firms and hedge funds. Others will remind us, however, how significant aspects of trading are now directed by computers, algorithm, client flow, and trading schemes--not requiring as many desk traders (or people).

For years, MBAs overlooked opportunities in risk management and didn't know much about the role. Financial institutions seldom tapped business schools for risk managers. After the crisis, financial institutions have learned lessons or have been forced to beef up emphasis, add professionals and become more attuned to all forms of risks. Regulators, too, in these times are always in the vicinity and insist that banks devote resources and attention to risk management in the way they may not have done so in years before the crisis.

Clement from Starbucks said, "I wish I took more classes in risk management (while in business school) and learned more how to manage (market) risks."  He described ways in which his company must hedge the complex risks of costs of commodity products. Business schools have responded in recent years to offer courses in risk management (for credit and market risks). 

Opportunities in venture capital, private equity and hedge funds are fleeting or uncertain, partly because these firms often recruit beyond the eyesight of business schools and tend to have opaque recruiting procedures. There exists, also, possible fall-out from recent insider-trading scandals (think SAC) and industry-wide hedge-fund shake-out.  Hedge-fund returns, believe it or not, trail that of equity markets in the past year or two, and more than a few hedge funds have closed their doors in the last year.

In venture capital and private equity, some industry observers say too much money might be chasing too few good deals.

Sandoval presented CFN's framework for approaching interviews.  The framework encourages students to examine and polish themselves in five areas:

(a) personal background,
(b) personal interest in the industry and company,
(c) personal drive and motivation,
(d) capability (expertise, knowledge, understanding of industry) and
(e) insight.

Nyong said, "I did a lot of informational interviews to find out what (industry segment) felt natural to me." He instructed students, "Look at the spectrum of positions available.  Seek out alumni."

Panelists emphasized the importance of being aware of current events, topics and issues, because interviewers will refer to them and being informed can help students make decisions about what they want to do. Guevara advised that students should make sure to "study markets and current events and have a sense of what's going on."

Rosenkranz recommended that students register and subscribe to www.smartbrief.com, a website that aggregates news stories and headlines, based on specific business areas (finance, accounting, marketing, etc.) or specific topics (derivatives, currencies, digital advertising, etc.). A student can tailor the website aggregation to his specific interests and can see the updates he needs to see.

Panelists emphasized frequently the importance of conveying interest, drive and enthusiasm in finance-oriented interviews. In interviews, Sandoval explained, "We forget to talk about our general interest and passion for finance."

Clement summed up, "You want them (the companies) to believe you can do this job."

"You have to know who you are and where you want to go," Nyong said. "If you can't buy it yourself, you can't sell it."

As panelists presented the CFN framework, Sandoval reminded students, "You are in the driver seat.  You design the framework that works for you. You control the questions."  

Year after year, finance students fear the technical interview, where financial institutions try to gauge what candidates know and how they describe finance scenarios on their feet. To prepare for what they perceive as stressful exercises, students study market trends and refresh themselves in principles of finance, markets and accounting. Beyond that, candidates seldom know how that interview will evolve.

Investment banks may require candidates to present a detailed deal strategy or advise in valuing a stock offering.  Hedge funds or asset managers may require candidates to  explain trends in interest rates or derivatives pricing. Corporate-finance managers may require candidates to evaluate a balance sheet.

Nyong advised, "Read the company's 10-K to prepare.  It offers a vision of their market and shows contrasts with competition."

Rosenkranz said, "Listen to the (company's) investor calls to see how management responds.  Listen to the kinds of questions (analysts) ask during the calls."  She added that for technical interviews, companies want to "see if you have intellectual curiosity." And she suggested that candidates can learn much about the company's structure, management and culture by referring to the website www.glassdoor.com.

"How does the company make money?" Rosenkranz asked, recommending candidates study closely the company's business model.

Clement saw the benefits of understanding thoroughly a company's income statement.  "You'll want to understand the P&L from top to bottom, understand the balance sheet," he said, because interviewers will be familiar with this financial information and will want candidates to show familiarity, as well.

CFN panelists, now experienced and entrenched in finance positions, shared other observations and advice.  However, while satisfied with their efforts to get from the classroom and case study to roles in finance, is there something they would have done differently in the recruiting process?

"I would have gotten a better sense of other roles (in the company)," Nyong said. They would include roles in operations, marketing, manufacturing and other functions, because finance touches so many important activities in an industrial company.  "I would have gotten a better understanding."

"I would have found somebody to act as a blueprint," Clement said, explaining the importance of connecting with a school alumnus, an experienced mentor,  or a senior manager to learn more about the recruiting process, the industry, and the ropes for converting dreams into strategies into meaningful job offers.

Rosenkranz said she understood the importance of showing intellect, expertise and general knowledge about the industry, but wished she examined more carefully companies' work environment and culture.

Panelists concluded that most MBAs, especially ambitious Consortium students at top schools, will find opportunities and take advantage of some of them.

"You want to be intentional," Clement offered. "You shouldn't just want to find any place to land. You shouldn't be fishing for just any place."

Tracy Williams

(A recording of the webinar and the accompanying written presentation will be available to CFN members in Linkedin.)

See also:

CFN: MBAs and the Summer of 2013
CFN:  Is the MBA Under Attack? 2013
CFN:  MBA:  Remaining Relevant, 2011
CFN:  Mastering Technical Skills, 2010
CFN:  Who's Headed into Finance? 2013
CFN:  How Mentors Help, 2009

Where Do You Want to Work in 2013?

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

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

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

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

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

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

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

Given:

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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


Tracy Williams

See also:

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

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

For the Fortunate Few: Comp Packages

Bonus season at financial institutions has come and gone. Yet for the month or two afterwards, there is the inevitable aftermath, the ruminating over what happened and the pondering over whether lucrative payouts in years past will ever reappear.

In the post-crisis financial industry, where many just feel fortunate to be employed, there will still be some degree of anger, frustration, or disappointment in payouts. Many yearn for the times of the 1990s or the early 2000s.  Most know the industry is still enduring a shake-out or a re-engineering of sorts, and compensation is a candidate for shake-out, too. 

Handsome compensation packages still exist in certain segments, perhaps most prominently at venture-capital firms, private-equity companies and hedge funds.  Even in 2012, you can read about insane, mind-boggling bonuses, likely because someone made an insane, mind-boggling hedge-fund trade.  Payouts at banks, investment managers and other financial institutions (or in general finance roles) still appear to be attractive to some, even if they have slipped to pre-2000 levels.

Financial institutions, however, are trying to be more creative. More than ever, they are tweaking the structure of compensation packages--more stock, less cash, some options, and even some distressed debt or arrangements with "claw back" features (where employees are required to return promised payouts if individual or institutional performance reverses itself).

In this post-bonus season in 2012, reports are widespread about the reduction in payouts or the clever structures of packages.  Morgan Stanley, for example, capped cash payments at $125,000. Credit Suisse and others transferred certain structured bonds or mortgage securities from their spruced-up balance sheets into the pockets of some senior managers.


The structure of comp packages depend on market and peer practice and institutional performance, but they also depend on experience levels and individual performance.  Accounting rules, impact on overall ROE and long-term corporate issues are also factors.

Senior bankers and traders are more likely to be awarded packages that include restricted stock, deferred compensation and/or options.  More junior personnel (analysts and MBA associates, e.g.), still with little leverage, will have less say-so and may be awarded all cash or some stock--whatever is rationalized by senior management at the time.

If you are a finance professional and if you are lucky enough to receive a comp package, what would you prefer? From the list below, what is the optimal structure for the firm and for you, no matter whether times are good, bad or so-so?

1.  Cash
2.  Cash and options
3.  Cash, options, and restricted stock
4.  Cash and deferred compensation
5.  Cash and debt securities

 Over the past two decades, there have been variations.  Recall the dot-com era, the explosion of Internet businesses and stocks.  In the late 1990s and early 2000s, some financial institutions awarded bankers and traders stakes in venture funds, start-up companies or leveraged investments.  More firms today are exploring debt compensation.

Two Wharton researchers argue comp packages should include debt securities issued by employees' companies. (See Wharton Research:  Alex Edmans, Qi Liu)  They argue that senior managers should behave like owners to maximize returns, but also behave like debt-holders who, because they aren't promised high returns, are more careful about managing and controlling risk.

As debt-holders, managers at financial institutions will be more apt to manage businesses within more comfortable risk bands. A payout, for example, of 80-percent stock and 20-percent debt makes sense.

Younger professionals usually prefer cash, partly because they need it.  Experienced bankers, traders and managers sometimes prefer cash, because they contend they can manage the cash better and more suitably for themselves than the employer.

In the dot-com era, younger professionals (including analysts and MBA associates at prominent firms) actually demanded it, or they threatened to leave finance for opportunities in technology.  And the bulge-bracket firms at the time obliged.  This same segment has less leverage today, but will likely still be paid minimally in stock holdings.

All the world knows, if the company is expanding and growing and has a bright horizon, then packages adorned with options and stock are welcome.  If the company has stumbled or is struggling, employees will shirk equity that will likely decline, although a cash-strapped company will tend to award just that because cash is necessary to stay viable.

Deferred compensation and options are unattractive when the company's prospects are failing. Options over time can expire worthless. And institutions sometimes go bankrupt (Lehman, e.g.), at which time deferred comp becomes just another debt claim.

For the newer MBA associate or first-year vice president at stable institutions in stable industry segments, non-cash compensation is not as bad as it sounds when managers hand over the envelope with "the number."  Non-cash comp comes with restrictions and requires patience, but there are advantages (although sometimes hard to see when you are just starting out):

(a) The upside tends to be greater in the long term.
(b) And yes, it can be a disciplined savings plan for those who haven't yet begun to appreciate the values of long-term investing.

Tracy Williams

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

Approaching 2012

Trying to project 2012 is like reading tea leaves. Who's willing to make an informed, detailed forecast and be comfortable and confident about it? The variables are too numerous, too complex, too bewildering.  If you are a finance professional, an MBA student or a Consortium alumnus, how do you brace and prepare for next year--a year of turning points and pivots with Europe unable to make up its mind about a corrective course and with U.S. elections hovering?

By now, we have grown weary of the tail end of 2011 and are ready for the year to get going. Early in 2011, business and financial signs were uplifting. We were poised for a sustained upturn until we fell off a cliff in August. Since then, we've feared a repeat of the fall, 2008, with a different set of plots, twists and finger-pointing.

The plot this time revolved around the bickering in Congress about budget deficits and debt levels and bickering in Europe about debt levels and budget deficits. The collapse of MF Global and its unexplained loss of a billion dollars of customer funds caught everybody off guard. Jon Corzine, its CEO, was supposed to have brought Goldman magic to the struggling futures brokerage. Insider-trading scandals, pending financial reform, and general economic malaise complicate the plot.

Markets meanwhile swooned out of control, with a mind wandering on its own, reacting irrationally to whatever announcement, statistic or trend happened to be the worry of the day. 

Financial institutions, rebounding with a blaze with 2010 profits and gearing up to hire in large numbers, began to stumble. Trading losses hurt their bottom lines, and many are still crippled from mortgage-related businesses. It didn't help in late 2011 when the public perceived big banks were creating fees (ATM fees, checking-account fees, debt-card fees, whatever) out of the blue, unnerving retail customers.  Financial institutions around the globe continued to duck slings and arrows from critics, pundits, politicians, and economists.

Nonetheless, amidst this apparent mess, lately there has been a quiet seepage of good news on employment fronts, retail spending, and general confidence. Facebook still wants to proceed with its public offering, and major banks everywhere continue to push hard in certain areas--wealth management, community banking, e.g.

What do finance professionals--both the MBA student and the experienced, senior executive--make of this confusing environment? How then do they approach 2012, when many expect a market holding pattern as Europe endures a few more scuffles before it figures itself out?

For MBA students, including Consortium students across the country, the environment seems like a whirlpool--enticing, but constantly stirring. Students are unsure when and how the waters will calm down. They are forced to adopt a Plan A, then a Plan B, and likely a Plan C.

Financial institutions are sending mixed signals. They want to hire more interns and first-year associates in private wealth management, in corporate strategy, in treasury, in corporate banking, in risk management, and in spots in Asia. But then they change their minds, reduce their expected hiring numbers, or announce large-scale cutbacks in the areas they previously promised to emphasize more.

Students are wooed by major institutions, but they know they must be purposeful and diligent in finding the right spot at the right place.

More experienced finance professionals are thankful they are in substantive roles. But the memory of 2008 is haunting. They endured the crisis, many survived it, some repositioned or rebranded themselves and landed elsewhere. However, they know what can or might happen. Although 2011 is not 2008, they can't help but wonder whether a Euro collapse could be more devastating than a Lehman downfall. How do we, they must ask, prepare individually for what could happen in a way that we weren't prepared before?

Experienced MBA graduates (including many Consortium alumni in finance) know better this time around they should take efforts to manage the uncertainty around them or shrewdly insulate themselves from career risks that may or may not happen.

Experienced professionals, however, could be the ones who guide younger MBAs who are unsure if a financial hurricane or financial sunshine looms ahead. They can compare the current scenario with other periods in recent finance history. Is this a scaled-down repeat of 2008? How do these times compare to periods of market upheaval or market confusion during the dot-com blow-up of the early 2000s or the maddening sequence of Long Term Capital, Russia and Asia defaults in 1998? How is the industry better prepared now (or less so) than in struggling times in the past? Are we in the midst of a real recovery, but we don't see it because we are blinded by the turbulence across the Atlantic?


More senior professionals, in a mentoring role, can advise younger professionals and students on how to focus on daily, immediate tasks and have confidence in what can be controlled--the next project, the next presentation, the new opportunity to learn.

Approaching 2012 is like turning a corner. Perhaps around the bend lie opportunities, optimism, profits and improved times--not the daunting signals of a crushing, long-term slowdown.

Tracy Williams

"What Have You Done for Me Lately?"

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tracy Williams

Team from Tepper Takes ELC's Prize

A Carnegie Mellon quintet of MBAs faced challenging competition from teams from USC and Michigan, but managed to emerge as the winner of the Executive Leadership Council's (ELC) annual business-case competition in Alexandria, Va. in May.  (See http://www.elcinfo.com/.) The USC and Michigan teams followed in second and third place, respectively.

Exxon Mobil and ELC sponsored the annual competition. ELC has presided over the competition since 2002. This year the topic was energy and the reduction of greenhouse gases. Students from top business schools were asked to present a detailed business strategy outlining America's transition to lower greenhouse gas by 2030 in the most cost-effective way.

Carnegie Mellon's winning team from the Tepper School earned over $35,000 in scholarships.  The team from Tepper, a Consortium school, included recent Consortium graduate Jacob Garcia.  Other team members included Jesse Alleyne, Ian Buggs, Felix Amoruwa, and Richard Burgess. (USC and Michigan are also Consortium schools.)

Team captain Amoruwa told ELC organizers his group sometimes worked until 3 a.m. to work on the project and had follow-up meetings the next morning at 8 a.m. He said the group's effort "truly paid off for us."

The project was expansive. Teams had to outline plans for the nation to meet energy goals without incurring excessive costs. They had to identify areas of public and private investment and job growth.  And they were required to specify ways to recruit more African Americans and other under-represented minorities to work in energy.  Over 50 teams from business schools across the country participated.

The Carnegie Mellon team will be honored at the ELC's annual gala dinner in Washington, D.C., in October.  The team will also participate in leadership activities in New York in the fall.

Consortium student Garcia graduated from Tepper in May, where he concentrated in marketing, strategy and quantitative analysis. Tepper student Alleyne, a rising second-year student, was also a winning participant in case competitions sponsored by McKinsey and Deloitte. Buggs, a recent Tepper graduate, was president of the school's graduate business association. 

Tracy Williams

Business Schools: "Satisfied" Alumni

Dartmouth's Tuck leads top business schools in alumni-participation in donations

Who are the most satisfied alumni among top business schools?  "Satisfied," for these purposes, isn't defined by the alumni happiest in their careers, the most content in their outlook,  or the most optimistic about business opportunities. Satisfied," in this case, applies to alumni who are happiest about their business-school experiences. 

They are the ones who most appreciated the two years of toil to get the MBA and reflect fondly on time spent with professors, deans, classmates and career advisers. They might recall cheerfully the class "field trip" to China, the end-of-year skit performed before a standing-room crowd, or the thought-provoking cases in project finance. They will have appreciated the school's brand-new, state-of-art facility--featuring technology marvels and electronic wizardry.

Sometimes satisfaction in career correlates closely to satisfaction at business school, because alumni reason that the b-school experience helped prepare them well for a thriving career. Other times, unhappy alumni may not appreciate a long-ago experience until years after they graduate.

They will complain about a tortuous experience in an advanced accounting course while in school, but will appreciate the principles they learned while doing a deal years later. They will gripe that a school is too far from the finance centers of New York and Chicago, but will appreciate decades later the contacts they made and the friendships and networks they cultivated. They may not understand why they must take a required course in policy or decision-making until they are sitting in decision-making roles later on.

Business schools, their stakeholders, and those who try to rate, rank and evaluate business schools struggle to define ways to measure "alumni satisfaction."

One way they do it is not necessarily the best or fairest way. But they measure it anyway. They measure satisfaction by tallying up the numbers of alumni who contribute consistently to their respective schools.  They presume alumni happy with their experiences on campus will happily write checks once or twice a year. The amounts will vary, depending on what alumni are doing and where they are in their career stages.

Along this premise, CNN and Money magazine tried to determine which top schools have the "most satisfied" alumni based on percentage of alumni who give back (http://www.management.fortune.cnn.com/). Consortium school Dartmouth (Tuck) was a run-away leader with 67% of nearly 9,000 living alumni who made donations in a recent year.  Analysts attribute that to "satisfaction" with their experiences in Hanover, to appreciation of how Tuck prepared them for careers, and to Tuck's vast, tight global network of alumni.

Consortium schools Yale and Virginia (Darden) followed in second and third place, with 46% and 43% participation rates, respectively.

As with any list, readers should approach statistics-based rankings with care.  Some observers or deans say alumni giving is influenced by many factors. Some schools, for example, encourage alumni to write their big checks during reunion years (once every five years), so year-to-year participation rates can be misleading.  Other schools encourage alumni to contribute something--any amount in any way--every year to get into the habit of giving. 

Some, according to CNN, say public business schools lag because alumni may presume as neighboring tax-payers they are already supporting schools.  Other schools encourage giving, but are just as happy if alumni donate time, volunteer in service, or partipate in mentor programs, interview prospects, or recruit.

Satisfying and memorable experiences surely influence alumni giving. But economic conditions, personal situations, time constraints and the schools' own alumni infrastructure can be significant factors, too.  The development offices at some schools are more efficient and successful than at others.  National alumni networks are better organized at some schools. 

Then there could be the UC-Berkeley MBA graduate, who appreciates the courses and professors in entrepreneurship that helped her launch a start-up in nearby Silicon Valley. She has intentions to give back, but in her company's early stages does not have the resources or time to be "reflective" or "appreciative" of experiences at Haas. Or she simply promises herself to write the big check when her personal net worth soars.

In general, Consortium schools fared well on CNN's list.  Cornell (Johnson), 23% participation, was seventh; Consortium schools UCLA, Carnegie Mellon and USC were 11th, 12th and 13th , respectively with participation rates between 19-20%.  UC-Berkeley, Emory, UNC, Michigan, Indiana, NYU, and Texas were also included in the list. 

Consortium schools Wisconsin, Washington Univ., and  Rochester were not included on the list--likely because they were unintentionally omitted from the survey or CNN may not have had sufficient information.

For all schools, the median gift is about $150--suggesting that many alumni, no matter their age or experience or net worth, will make a nominal donation yearly because they are sufficiently satisfied and because they are respectful of the schools' solicitation efforts (the e-mails, the letters, and the phone calls).

What about giving rates among Consortium graduates? Do Consortium graduates give back to their schools? Do they also give back to the Consortium?  Compiling these statistics is more complex than it appears. Consortium graduates give back to their schools, probably in comparable percentages as the rest of their classmates. Many Consortium graduates give back to the Consortium, too. Some make donations to both; some request and hope contributions to the Consortium are also counted as contributions to their schools, and vice-versa. 

Some even dream of making a philanthropist-like contribution, too, once personal net worth soars "after the IPO" or after "the new business takes off."

In 2010, the Consortium reported a 13% increase in the amount of donations from over 1,200 individual donors (including alumni)--an increase that is due in part to improved economics, but also to the Consortium's own well-planned efforts to reach out to alumni and others.

The statistics may not capture one popular Consortium sentiment: Most, if not all, Consortium alumni, whether they contribute regularly or not, will say they are "satisfied" with the opportunity the Consortium experience afforded.

Tracy Williams



Affinity Groups: To Join or Not to Join

To join or not to join. To get involved or not.  The New York Times Sunday posed the query to Consortium CEO Peter Aranda in its July 3 edition:  Should members of under-represented groups join the "affinity groups" that exist in certain business settings?  They are special-purpose groups within a company that attract a membership of women, Hispanics, or Asian- or African-Americans. Or they may be groups that attract others with shared interests or backgrounds:  LGBTs, Native Americans,  Arab-Americans, or South Asians.

They may include--within the institution--groups of African-American investment bankers, an Asian society of traders, researchers and analysts, or women in risk management. They could include Latinos in private banking or financial consulting.

The Times posed a challenging question, one that many within these groups grapple with from time to time. Is there an advantage or disadvantage if you choose to affiliate with affinity groups while you are ambitiously trying to advance within the company? Is there a negative stigma in the eyes of those who appraise and promote you? (See http://www.nytimes.com/2011/07/03/jobs

Aranda suggested affinity-group involvement is beneficial if the primary purpose is not social. "Affinity groups can operate like focus groups," he told the Times.  The affinity group should have a purpose consistent with the business objectives of the company. Aranda suggested you should join  groups that have senior-executive sponsors and that are directly tied to business functions like recruiting, marketing, or product development.

Or you should join if the group has a mentor program.  "From a minority perspective, you should have mentors, so if you are a Hispanic junior executive and you hope to rise through the ranks, you can talk to someone who has been down that path ahead of you," Aranda said. "What you need to be careful about with affinity groups is that you aren't creating segregation by being exclusive."

Many major financial institutions, such as Citi, JPMorgan Chase, and BofA endorse the formation of affinity groups and support them in many ways.  Most such groups were formed to help in professional recruiting and evolved into networks that assist in retention and career development. They work with recruiting units to top identify candidates and escort prospects through the recruiting process. 

It's not unusual, however, for a woman, African-American or Asian-American to assess whether being associated with such groups slow down progress to get promoted or win an opportunity to transfer overseas. In financial services, performance, commitment and productivity count during appraisals. But impressions do, too, whether or not they are conveyed fairly. So inevitably, women and minorities ask themselves about the possible stigma of being associated with groups that might be regarded by outsiders as separate or exclusive.

Often, however, affinity groups offer broad advantages and institutional assistance. Big banks, firms and institutions in recent years have not shunned their formation and have not frowned on them.

How then can affinity groups be formed "without guilt" and with pride and enthusiasm, while conforming to overall business objectives?

1.  Affinity groups can assist in recruiting. They can participate by visiting campuses and identifying candidates. They can help institutions formulate firm-wide recruiting strategy, establish relationships with diversity pipelines (such as the Consortium, of course), improve relationships with professors and career advisers at colleges and business schools, and assist recruiters as they comb through long lists of candidates.

Members of affinity groups are usually committed, experienced business professionals. They will know better than corporate recruiters the special talents and strengths necessary to excel on the job. They will be able to pinpoint outstanding women and minority candidates more quickly. They will, also, be more familiar with the sources, pipelines and places to find that talent. They will know HBCUs, understand the value of such groups as National Black MBA Association, the Consortium, or Toigo, or have ties to social and professional organizations within these communities.


2.  Affinity groups can assist in the institution's efforts to hire experienced or lateral talent.  How often have we heard banks, funds or companies say they want desperately to hire experienced vice presidents from under-represented groups, but "can't find them"?  Affinity groups usually know who they are, where they can be found, and whether they might be interested in a lateral move.


3.  Affinity groups can assist in the development of entry-level professionals, including recent MBA graduates.  And they can do this in formal or informal ways.  Most large institutions have structured professional tracks (for analysts, associates, etc.) and care about the development of all who join. Often, however, some junior professionals get more attention and support than others. Others are deserving of support and encouragement, but get lost among the throngs of new people. 

Affinity groups, therefore, can step in to ensure that everybody is advised, guided and encouraged to progress. They can do this via mentor programs, special seminars or career-development sessions. Or they can encourage senior managers, bankers and traders (including those who are part of the affinity groups) to reach out to junior professionals.

4.  In finance, topics, markets, and business can be complex and always changing. The learning curve is always upward. Keeping up can be difficult. Affinity groups can (and should do more to) be a source for members to reach out to each other for information, knowledge and understanding.  The affinity group may act as a "clearinghouse" for questions about products, markets, clients, and technical analysis.


For example, a junior banker may need a refresher on equity derivatives or foreign currencies.  The affinity group can match the banker with another member who is an expert on the topic and will gladly take the time to explain the product.  A recent MBA graduate may want more information about tax-related accounting, financial models, or corporate valuations.  The affinity group can find a member expert who will gladly help.

Once formed, how can affinity groups be effective and self-sustaining? How can they exist long beyond the initial enthusiasm of the early days of formation?

1.  As mentioned above, they should have business-related purposes and specific objectives aligned with the business objectives of the institution, the sector, or business unit. If so, the group will likely provide ongoing institutional support.

As Aranda said, affinity groups should have senior-management presence or senior sponsors.  A senior manager should agree to be more than an in-name-only sponsor and should agree to be involved and act as a champion for the group in business-unit meetings, corporate strategy sessions or even board meetings.

2.  To ensure it transcends being a social outfit, the group should define objectives and strategies clearly, should share them with the broad corporate population, and should meet routinely.  The group should show that it is serious about its intentions and it plans to be around.

3.  The group should reach out early to new professionals, solicit their ideas, absorb their energy and accept them as equals in the group.

What then makes affinity groups vulnerable and ineffective or perceived negatively?

1.  Petty issues and politics suffocate affinity groups.  Sometimes they get bogged down in non-essential issues or caught up in broad corporate politics. The groups sometimes risk spending too much time on the wrong issues. Members lose interest, when they think the time is better spent going back to the office to tackle the in-box.

Affinity groups should, therefore, be attentive to and conscious of how members use their time.  Most members must weigh the time involved vs. the time involved in daily job responsibility. But most are willing to take the time, because they see the long-term benefits. Affinity groups must strive to avoid unnecessary work or projects.


2.  Sometimes they smother themselves with power struggles within the groups. Sometimes members become more impressed by their being heads of their organization than by the mission at hand.  Members risk wasting time figuring out what the titles or name of the group should be or who will represent the group in its meeting with the CEO.

3.  Vague and inconsistent communication sometimes hampers such groups. A group's steering committee might fail to inform all members about what the objectives, programs, strategies and updates are.  Members then feel isolated or disillusioned and become less interested to support the overall cause.

Affinity groups are effective when they are inclusive and are fierce in their efforts to keep everybody informed.

4.  Sometimes affinity groups trip when their objectives are vague, confusing or cumbersome because of corporate-speak.  Some outsiders are already not sure why they have been formed or why they exist; hence, members shouldn't be confused about the real purpose.

The objectives should be crisp, simple, straightforward.

5.  Affinity groups shouldn't be exclusive. They shouldn't try to define membership qualifications and should, in fact, encourage those of different ethnic backgrounds or sex to join and participate. Sometimes groups have stumbled over themselves trying to stipulate who can join or not or who can become leaders or not.

To join or not to join?

If the objective is proper, if the ultimate aim is consistent with institutional mission, if the passion is there, and if the time involved is productive, then why not? There will be long-term benefits for members--and for the institution.

Tracy Williams

Finance Rumblings: Here We Go Again?

Just when we thought all had turned around and we sensed the corner had been turned, we hear banter about financial institutions pondering lay-offs and staff reductions. Haven't we heard these rumblings before?

As big banks and other financial institutions stumble toward the end of the second quarter, 2011, published reports say lay-offs are looming. Senior managers have begun to panic over whether they will be able to generate returns that will match those of 2010, especially with deal flow, trading activity, and the economy sputtering.  Historically, the first response of financial institutions (from trading desks and deal teams to operations groups and compliance functions) is to reduce personnel numbers to brace for rougher waters.  And always, the method that comes to mind to reduce is "LIFO" outplacement--the last in are the first out. Critics say the first reaction is to protect compensation among the elders when the industry must weather a brief storm.

This time around, some financial institutions say they will manage a hint of a slow-down in intelligent, efficient ways.  Banks, funds, dealers and other financial institutions in the past often reduced staff too quickly. Once markets signaled a decline, institutions marshaled out the door the young, ambitious talent it had just hired with effusive enthusiasm.  When markets turned bright months later, firms with swiveled heads rushed to replace the talent it just let flee.

Financial institutions promise they will manage staff numbers better the next time. So at midyear, 2011, when banks and firms sense turbulence heading into the second half (not a crash, not a collapse, not a double-dip recession, but a pause or a correction of some kind), they must restrain themselves to avoid rampant lay-offs in areas where they will be desperate for analysts, team leaders, MBAs and finance experts once markets and activity surge again.

Still, the professionals in these roles must be prepared--from managing director, senior vice president to analyst intern. In fact, this could be an opportune time for self-assessment, the time to ask introspective questions about what's next or the time to make sure you are in sturdy spot if there is commotion around and about:

1.  Are you in a group, unit or business area that could be vulnerable?

2.  How would you expect business-unit leaders to respond, behave or react if there is a prolonged slow-down in the business? How have they reacted or behaved in the past?

3.  Do you understand the positioning, the strategy or the vulnerabilities of your group or area?  Are you aware of the profits and losses (or expense burdens) of your group?

4.  Have you performed as best as possible, given the circumstances? Have you done something recently (managed a project, done a deal, generated new business, or developed staff) that can separate you from the rest?

5.  Are there other opportunities worth exploring? Could this be the right time to move to a new area, new role or a position with greater responsibility and visibility?

Often finance professionals, from those at entry-level to those in privileged perches at the top, will say they are too mired in current problems, deadlines, and group turmoil to address career-related questions.  "We are just trying to survive," everybody says. 

Pausing and assessing what's going, nevertheless, might be worth the time and attention--even if you are exhausted from trying to develop new business in shaky markets, taking on extra projects to prove you can still contribute, or existing in an environment of uncertainty and worry.

Whether they are Consortium MBAs or others with extensive experience, there are many stories of how people thrived when the ground was shaking beneath them, when they took advantage of tenuous circumstances or when they used them to springboard to a better position. This is the time when equity analysts might decide to transition into private banking, when a derivatives expert might consider being a foreign-currency risk-manager, when a top client-relationship executive moves into corporate staff management. Or when a senior manager agrees to take on more responsibility--more groups or more clients reporting into her. Or when the 10-year corporate citizen decides to pursue an opening at a smaller boutique.

It could be the right time, too, to reach out to networks, peers, and colleagues to share ideas, perspectives and concerns.  Not gossip, not hot leads to a new job, but information or insight about what's going on and where the industry is headed. Ideas about next steps and appropriate ways to manage uncertainty. What better time, say, than for Consortium MBAs in finance to reach out to share thoughts about where markets are headed from here, what the hiring trends are in certain areas of the U.S., what opportunities exist in foreign locations, and what the best ways are to confront uncertainty.

Tracy Williams

On Campus: Admission Season

On campus at Virginia's Darden School in Charlottesville

Around the country, applicants to the Consortium are being notified of their admissions. The special ones selected to become Consortium members are planning their June trips to the Orientation Program in Minneapolis.  This, of course, includes dozens of admitted students who will indicate an interest in financial services.

If this year is like those in recent years, between 80-125 prospective students will report they are interested in finance in some form. With improvements in markets and performance among major financial institutions, that number could exceed 125 this year. Prospective students won't likely fear being interested in banking or investment management or trading in 2011, as they were in 2009.

While the Consortium process has wound down, admission season continues at most Consortium schools, which tend to have "rounds" of admission. They review hundreds of applications in batches for each round and make admission decisions shortly thereafter. The deadline for the final round for many schools was this past week.

As business schools adapt,  change, update, reinvent themselves or conduct upheavals in the curriculum and core courses, admission to full-time programs at Consortium schools still tends to be selective. It's still not easy to get into Tuck, Stern, Ross, Tepper, Darden and most other Consortium schools.

Applications at Consortium schools (to the school, not merely the Consortium program) are still holding up, proving there is still a keen interest among young professionals to pursue the MBA--despite uncertainty in job paths, despite pockets of critics who say the degree needs to reorient itself toward different skills, or despite the continuing increases in costs.

Many Consortum schools (including Michigan, Yale, Cornell, NYU, UCLA, and Virginia) still must read through over 2,500 applications each year at each school and select less than 20% applicants for admission. Take NYU, for example.  In recent years, it hasn't been unusal for it to have over 4,500 applications, where only 13-15% are invited for admission to its full-time program. Dartmouth and Yale typically have around 3,000 applications (each), and about 14-16% are admitted.

Michigan, Virginia, Cornell, and UCLA are other Consortium schools have applications numbering close to or far in excess of 3,000. Just about all Consortium schools have average GMAT scores among first-year, full-time students at least above 635. (Average GMAT scores, in fact, at such schools as Michigan, UCLA and Dartmouth exceed 700.)

Consortium schools continue to have the luxury of being selective. It's not just high scores and solid GPAs; they expect years of quality work experience, evidence of leadership potential and passion for people and organizations. So getting into Consortium schools is still a challenge, but an exciting, not too daunting one for many who pursue the degree.

Most Consortium schools, from the mere fact they chose to be partners with the Consortium, are in the lead when it comes to diversity or assembling classes from all backgrounds and from many countries. Consortium schools, however, know they can't rest on laurels and must maintain an unrelenting effort to ensure they recruit adequate numbers every year. 

Sometimes it's not easy, as from year to year the number of, say, African-Americans at one school may surge one year, but decline sharply the next year. The percentage of women at top MBA schools is far less than 50%, although demographics and statistics show women are highly qualified to attend. At USC, for example, in a recent year, the school reports an admirable 30% of its first-year class as Asians, African-Americans, and Hispanics, but only 27% are women. Such a breakdown is not unsual at many top programs.

Even with the leverage of being selective in choosing applicants, Consortium schools still compete for top students by making themselves special, attractive and perpetually relevant.  Yale is making it a priority to build a new state-of-the-art (by 2011 standards) business-school campus--thanks to a $50 million donation. The new buildings are expected to open within the next two years.

Virginia's Darden school happily reports, as it does now, that it ranks no. 1 (at least by Bloomberg-Businessweek) in student satisfaction.  MBA students can and will be demanding. That's not a surprise, given most are paying full tuition at extraordinary ticker prices and are extracting two years out of the precious years of the early stages of a career to return to campus.  They want and expect updated technology, new facilities, access to top professors, facility comfort and business legends and leaders to come to campus. According to Businessweek, Darden is meeting many of those demands.

This past week, DeMaurice Smith, executive director of the NFL's players association, gave a lecture on campus presenting the graphic and gory financial argument of the players' case in the current lock-out. The room was packed with interested students, who were enticed by his numbers-oriented presentation.

Carnegie Mellon's Tepper School will have a new dean next month:  Financial economics professor Robert Damon, who specializes in anaytical decision-making and wants to introduce such methods and techniques to the process of leading a top business school. (He also happens to have an MBA from Consortium school Wisconsin.)

With admission season winding down, next comes the countdown to the first days of fall session, 2011.


Tracy Williams