[A version of this post also appears on the Quant Network.]
When my friend Steve Hsu linked to a review of Karen Ho’s recent book (Liquidated: An Ethnography of Wall Street), I was a bit skeptical. An anthropologist writing on the results of her thesis fieldwork about Wall Street? That’s got to be a dry and tough read. To my surprise (most of) the book was engaging and hard to put down. Ho mostly covers investment banking, but she does have some sections that pertain to trading and investment management. Given that investment banking is less familiar to me, I enjoyed her systematic study of the profession.
She opens with a chapter describing the recruitment practices of (the major) U.S. investment banks. While investment banking groups target graduates of all elite U.S. universities, they especially go after Harvard and Princeton students. Recruitment events at Harvard and Princeton take place throughout the academic year, with alumni dazzling their Harvard and Princeton “family” members with investment banking stories. I asked my nephew about this (he’s a class of 2009 Princeton engineering grad) and while he was aware these recruiting events took place year round, he was surprised to learn that the investment banks went after Harvard and Princeton students regardless of their academic majors. The banks believe that their training programs will prepare humanities and social science majors for the rigors of investment banking, just as well as engineering and science students.
The next chapter covers what the new recruits do once they enter the investment banking world. The work schedule (brutal hours over months) is bad enough, but the actual work doesn’t seem that appealing. Most of what they do is help prepare deal pitch books, but the hierarchy of the profession means that recent graduates (i.e. the “analysts”) and MBA’s (the “associates”) are at the beck and call of VP’s and Managing Directors. When you factor in the long hours, the compensation (base salary AND bonus) isn’t that great. But even if the salaries were even more astronomical, these recent graduates give up their personal lives for months on end.
How do banks continue to recruit graduates from elite universities? Surely there are enough stories from these white collar sweatshops to frighten off future students. First, banks and management consulting companies are relentless in targeting graduates of the top schools. Other industries recruit at the elite universities, but banks have specific recruitment numbers they set for each of these schools, and they go all out to meet their numbers. More importantly, it turns out banks have figured out how to appeal to students’ desire to maintain a measure of their elite status. The recruitment campaigns are peppered with references to how “smart” their co-workers will be and how they will be among other members of the Princeton/Harvard “family”. To students at top schools this appeals to their desire to maintain the “elite” status they occupy as students of prestigious universities — working at investment banks will allow them to be among fellow alums, in positions occupied mostly by graduates of other elite schools. In fact Ho recounts that it wasn’t uncommon for her interview subjects to refer to co-workers by their schools (“we have 2 Harvards, 3 MIT’s, and 5 Princetons”). Contrast that for example with the technology sector where most companies don’t care much about where a person went to college (if they went at all), no wonder finance and investment banking grab most of the graduates of elite Universities. Better yet, compare our elite schools with France where graduates of many of the top schools vie for public sector jobs!
In terms of compensation, according to Ho employees at large Wall Street banks view their employment as a “financial relationship”. They embrace the risk/reward trade-off between high compensation and (for most employees) the absence of job security. Most investment bankers suffer through the ups and downs of the economy, and it wasn’t unusual for Ho to come across bankers who had endured multiple periods of unemployment. What’s striking about the speed with which investment banks shutter entire groups and offices is that it exemplifies a common criticism leveled against the financial industry — the focus on short-term conditions and lack of strategic vision. Time and again investment banks close down groups only to find themselves having to scramble to hire bankers back when economic conditions change. Which begs the question, why should companies take strategic advice from investment banks, when these very banks don’t really have any strategy/vision for how to manage themselves!
Speaking of strategic advice, one of my pet peeves with investment banking is the lack of metrics. Hedge fund and other investment managers get evaluated and ranked constantly. Investment bankers should be scored over how their advice and recommendations play out over the long-term. Think about the many botched deals in recent years (e.g., AOL/Time-Warner merger), and one wonders why there isn’t more accountability on the part of bankers. At the very least firms should be scored, but ideally individual bankers should be as well. I wouldn’t be shocked if the very bankers who took credit for initiating deals (to claim the lions share of a given year’s bonus pool) are probably going to be the ones who will try to minimize their roles.
Karen Ho’s book is a must-read for anyone contemplating joining one of the major global banks. I’ve only written about a few of the chapters dealing with investment banking, but her book covers other topics including the recent subprime mortgage crisis. My nephew never had interest in finance and I’m glad to report he is happily employed in a technology company. Another nephew is an incoming Princeton freshman, and I’ll make sure he reads sections of Karen Ho’s book. Actually, even faculty of our elite schools are starting to question why so many of their graduates end up in finance. Karen Ho’s book should be required reading for students and faculty at these schools.
In closing, Ho’s book reminded me of Matthew Crawford’s book Shop Class as Soulcraft. Crawford points out that in many cases, working with ones hands is actually more engaging than rote/routine “white collar” occupations. There are many investment bankers who feel trapped, and would prefer to do something else with their lives. Ho encounters many such people who are determined to “stay in banking” while they can find employment, because “the money is that good”. (The Trap by Daniel Brook discusses this common dilemma.) If they really want to stay in banking, why not work for a smaller company, at least it wouldn’t be as hierarchical and boring.
Update (11/19/2010): Throw Golman Sachs off campus, an op-ed piece in the Cornell Daily Sun.
Update (11/3/2011): The LA Times on how the Occupy Wall Street movement might be hurting Wall Street recruiters lure elite school graduates.
Update (12/13/2011): The practice of recruiting from the super elite schools has been the subject discussion among bloggers. See here for a summary.
Update (8/21/2013): The death of Merill Lynch intern Moritz Erhardt reminded of sections of Karen Ho’s book, that described extremely long work hours, most of which are spent polishing up pitch decks. Senior bankers need to rein in this practice of “forced” overtime.