From the monthly archives:

March 2010

Jim Fink, senior online editor for Investing Daily, is a self-confessed free market champion. But he nevertheless believes financial reform is both inevitable – and deserved. The reason? Something he calls the “Agency Problem” in investment banking.

Shareholders own a corporation, he says, but they hire agent-managers (executives) to run the business for them. In a perfect free-market world, the agent’s interests would be neatly aligned with that of the shareholders. But in reality, these financial interests can diverge widely, as we’ve seen in the recent financial meltdown.

Investment banking executives, for example, were the ones in charge of the firms securitizing subprime mortgages and credit default swaps and selling these toxic investments to institutions. The trouble is, the compensation scheme for the “agents” or executives doing the selling didn’t gibe with the risk of loss if the securities on the bank’s balance sheet became worthless, he says.

Executives had virtually unlimited upside, and very limited downside (getting fired). Hence, after a few multi-million dollar years, they were set for life. If the whole scheme blew up and wrecked their firms, they would be long gone.

Back when investment banking firms were partnerships, it’s highly unlikely that top executives would put this much of their personal wealth at risk. But once they became public-owned companies, it was the shareholders who were left holding the bag.

Fink makes an interesting comparison to this type of behavior and the definition of a psychopath. Psychopaths are people who “fail to feel remorse or guilt … appear to lack a conscience and are completely self-serving. They routinely disregard rules, social mores and laws, unmindful of putting others at risk.”

His conclusion? The psychopaths in investment banking cannot be trusted any longer. And that’s why investment banking reform is inevitable, and even supported by people like him who would otherwise be diametrically opposed to more regulation.

It’s worth reading the whole article at Investing Daily Online. In the meantime, what do you think? Is it the nature of the investment banking business to focus on self-interest? Must bankers be bludgeoned back into being more responsible? Add your comments below.

{ Comments on this entry are closed }

Three professors at INSEAD and University of California, Berkeley recently took a hard-nosed, statistical look at whether having an MBA actually improves a CEO’s long-term performance.

The authors sought to get past the anecdotal examples of such superstar CEOs as Bill Gates and Steve Jobs, who never even completed university. So they examined the track records for the 100 best-performing CEOs in the world, as published in the January-February issue of the Harvard Business Review, to get an objective gauge of the long-term performance. Performance was measured by return on shareholder investment and change in market capitalization during a CEO’s entire tenure at the company.

They did find a correlation. CEOs with MBAs ranked on average 40 places higher on the list. And half of the top 10 CEOs had gone to B-school. CEOs holding an MBA generated an average shareholder return of 93%, versus 81% for the rest of the group. Having an MBA had an even more dramatic effect on those who became CEOs before the age of 50.

So what is the magic ingredient in having an MBA that propels these executives to succeed? We’ll let you read the full article, which appears in Businessweek, for that. But one hint: it may have less to do with the actual skills acquired in B-school than it does about the attitude of people who decide to get an MBA in the first place.

What about an MBA and success in an investment banking job? Is it just as important? We’d like to hear your views. Just add your comments below.

{ Comments on this entry are closed }

The old slogan used to be, “Go West, young man” to seek one’s fortune. Today, it seems the opposite is true, as skyrocketing growth and better salaries are luring more business school grads to Asia, and particularly to China.

Businessweek reports that at top U.S. b-schools such as Chicago’s Booth, University of Pennsylvania’s Wharton and Northwestern’s Kellogg school, the percentage of MBAs taking jobs in Asia has doubled. This is not just a short-term response to the current economic downturn, but a long-term structural shift towards a more international and mobile market for investment banking talent.

And it’s not only Asian students who happen to be studying in the U.S. who decide to return home for job opportunities. The article lists many examples of U.S. students seeking their fortune in the East. One of them, Andrew Maywah, 32, was working for Oracle (ORCL) in Silicon Valley before entering graduate school at Wharton. Now he’s juggling job offers from three Chinese companies. In Maywah’s words, “It’s like the Wild, Wild West. There is just so much happening there. I want to be at the center of it.”

Meanwhile, Hong Kong is hot, too. MarketWatch reports that Hong Kong’s finance sector has seen a major reversal of fortune and now has a big shortage of people to help out in the finance sector.

Those switching jobs right now are likely to get salary increases of 15% to 20%. International banks are leading the recruitment drive for investment banking jobs, and there has been an increase in hiring among hedge funds and private equity groups, too.

The article quotes Mark Enticott, associate director at the recruitment agency Michael Page International in Hong Kong as saying, “We are starting to get back to that situation which we haven’t see for a year and half, where we really need to start sourcing from overseas and start relocating people.”

{ Comments on this entry are closed }

The Best Financial Firms to Work For

March 8, 2010

Fortune magazine has published its annual list of the top 100 companies to work for in America, and a whopping 20 financial services firms made the grade. Among the top three were Edward Jones, once again ranked #2. The St. Louis-based investment advisor sailed through the recession without having to close any of its 12,615 […]

Read the full article →

The Truth about Investment Banking Job Cover Letters

March 1, 2010

Do employers really look at your cover letter? Is it worth spending a lot of time on one? If so, what’s the most important thing to include? The answer depends on who you ask, according to a recent article in New Jersey Business News. Jane Angelich, a former vice president of human resources at the […]

Read the full article →
Real Time Web Analytics