The gentleman era of investment banking is largely mythical. There was a long period where they were notably less scummy and cutthroat than other investment banks (compare: Salomon Brothers in the 1980s) but they were always an investment bank.
The most visible (to a young person) sign of a bank's character is how it treats its employees. The 90+ hour weeks and terrible conditions in the "analyst" program (the term has nothing to do with analysis; it means "whale-shit") are not a new invention; that goes back to the 1980s. Before that, banking was dominated by the Mad Men culture: the hours weren't long but the politics was just as malicious.
> The gentleman era of investment banking is largely mythical.
There was a qualitative change after the banks went public. The old partnerships were inherently more prudent. And that's where the old culture came from. The new corporate structure rewards any risk-taking where losses lag gains by a year or more. So the culture changes.
I really think being publicly-traded companies is the root of the problem here. When a company goes public, it adopts one (and only one) goal: Maximize shareholder value. When that's the priority, it naturally follows that the sharks take over the waters. This is not a tough leap of logic, and it's repeated in corporate culture constantly. We need a famous person to quote it succinctly so that it is enshrined as a colloquial law.
I once worked for a guy who was considering incorporating his two-person company. His investors were mostly family and professional contacts. One day he was talking about how it would limit his decision-making because of his obligation to always do what was most profitable for the shareholders. He was potentially facing a choice between selling out to a much larger company or staying independent so he could develop the company into the kind of business he always wanted to run. He and his partner had a controlling stake, but theoretically, if their investors wanted him to sell but he refused, they could sue him for damages, breach of fiduciary trust or what-not. Or so he said. I asked him, "If there was a perfectly legal, but morally reprehensible way to make a lot of money for your shareholders, and you were aware of it but didn't take advantage of it, could they sue you for damages?" He didn't think so, but he couldn't explain to me the legal difference between his moral judgment and his lifestyle preference for one kind of business over another. I'm still intrigued by the question.
To make the situation more dramatic, suppose a company disposed of a thousand barrels of toxic waste every month, and the board of directors found out that the perfectly legal method by which they were disposing of the waste was horrifically environmentally damaging but exposed the company to no possible liability. Could they choose to dispose of the waste in a much more expensive way? What if it meant cancelling a dividend? What if it meant bankrupting the company -- could they be sued then?
I think the whole "fiduciary duty" argument is mostly used by assholes as an excuse for being assholes. Managers of corporations have wide latitude to do as they see fit. Successful shareholder lawsuits of this type are extremely rare.
It was enough to scare him away from incorporation while there was talk of an offer to buy the company. The customer that was going to make the offer would have replaced him in his business role, limited him to research, and shut down all the work that wasn't relevant to the one product of ours that they used, but they were going to give all the investors a very significant profit. He didn't care because he thought the company could be much bigger than the buyer wanted it to be, and also possibly because he was already wealthy and enjoyed being the boss much more than he needed the money. When I ponder that last part I guess it's possible that his worries about getting sued reflected a guilty conscience more than a real legal risk.
> There was a qualitative change after the banks went public.
Many investment bankers knew they were selling crap at insane valuations during the internet bubble. Hell, the first time I saw IB's taking advantage of mass mania was the junk bonds era and Michael Milken.
Those guys have had the culture of taking advantage of clients for a very long time. It might be argued that the author of the OP article is just a slow learner... But I give him major props on teaching what he learned.
>The most visible (to a young person) sign of a bank's character is how it treats its employees
Character in a limited sense, but I don't know how much that translates into client satisfaction. Foxconn, Apple, and Disneyland come to mind.
As a trader I officially had a 50 hour week. I stayed for 70+ hours because I found the work I was doing, at least initially, interesting (I was generally the last trader on the desk to go home). Specifically regarding investment bankers, yes they work very long hours, but the analysts there generally see the time as financial boot camp. Besides, the staff senior to them are no less workaholic.
Some start-ups have their employees working 90+ hours. This isn't because they're evil but because they have limited resources, a lot of work, and the people there are amazingly passionate about what they're doing.
Some start-ups have their employees working 90+ hours. This isn't because they're evil but because they have limited resources, a lot of work, and the people there are amazingly passionate about what they're doing.
Limited resources. That's why the long hours are not a sign of evil in startups but are one in banking. Banks could easily hire more people. Startups generally hire good people as soon as they can.
Whether they could is debatable given that many of them are aggressively trying to raise capital, even if it means laying off workers to cut costs. But let's assume they can.
That doesn't mean they should. Most bankers I knew were much more upset about losing their week-end beer fridge or a $5 reduction in their daily meal allowance than they were about putting in a few more hours. You have to remember that most analysts see their 2 years as an apprenticeship or finance boot camp - they want all the experience they can get so they have a gilded resume at the end of it.
I still don't see a good argument for judging firms where highly compensated employees with plenty of options work long hours, particularly when, as in banking, their tangible skill-set is relatively low.
Whether they could is debatable given that many of them are aggressively trying to raise capital, even if it means laying off workers to cut costs.
They could always, you know, stop paying million-dollar salaries to people with no skills other than office politics. I know this sounds radical, but it would free up some of the money.
Most bankers I knew were much more upset about losing their week-end beer fridge or a $5 reduction in their daily meal allowance than they were about putting in a few more hours.
I'm not talking about "a few more". I'm talking about the difference between 40-50 (sustainable, safe, sane) and 80-120.
In most companies, a 5:00 pm work drop with 6 hours of work due next morning would be taken as a sign of dysfunctional process. It might happen occasionally, such as during a production crisis, but it wouldn't be an everyday event. Bankers like to hire naive college kids because they don't know their rights and don't know that these kinds of late-day work drops are a textbook example of bad process.
they want all the experience they can get so they have a gilded resume at the end of it.
You and I both know that the "experience" most analysts are getting isn't very useful or interesting-- not enough to merit working 100+ hours per week. Checking pitchbooks at 1:30 am? Downloading 600 corporate logos? Do you really think people learn much doing this kind of grunt work that a high-schooler could do?
They just want the name on the resume and the automatic acceptance at a top business school, because for whatever reason B-schools still believe people actually get something useful about being an investment bank's peon for two years.
The most visible (to a young person) sign of a bank's character is how it treats its employees. The 90+ hour weeks and terrible conditions in the "analyst" program (the term has nothing to do with analysis; it means "whale-shit") are not a new invention; that goes back to the 1980s. Before that, banking was dominated by the Mad Men culture: the hours weren't long but the politics was just as malicious.