Banks suffer reversal of reputation as business graduates look to less regulated industries
Banking was once the career of choice but the technology is now the rage
Recruiting trends at leading business schools are a key indicator of the prospects of an industry. And no other industry today receives more derision and apathy from business school candidates than banking. It represents a huge reversal of reputation because banks used to offer some of the most attractive career opportunities.
Today, even top banks are having difficulty attracting the best business school candidates. This may be a secular and irreversible trend that affects the future level of quality, innovation and culture in banking. I recently met candidates from Harvard Business School (HBS) who revealed some shocking but inevitable changes in attitudes. While HBS strives to remain a leader, its students are most adept at detecting where their personal fortunes lie.
While some critics say that business school hiring trends can be faddish, lagging indicators, these candidates cited how even a top-tier bank like Goldman Sachs, which in its partnership days used to boast an esprit de corps unlike any other organisation, now confronted difficulties in even meeting top HBS recruits. They say the best graduates are unlikely to work at Goldman.
From the 1970s to the 2000s, Wall Street used to attract the best business school graduates because it offered high pay and interesting work despite the long hours. Today, some HBS students characterise Goldman as one of the least attractive employers. A complete breakdown and overhaul in the investment banking business and employment model alongside a revolution in the technology industry has rendered banking a relatively unattractive profession.
One HBS student said the only way Goldman could attract enough candidates to its 5pm recruiting session was to offer an open bar. This is a far cry from the '80s when people would have queued for hours for an opportunity to land a coveted associate-level position.
The shift in sentiment was best illustrated when Peter Thiel (co-founder of PayPal) showed up on campus not to recruit, but to speak about his companies, which caused the school's 1,000-seat theatre to be filled to capacity. When Elon Musk (founder of Space X) or the Google founders visit, the atmosphere becomes electric. After all, would students rather meet these cultural icons or the chief executive of a bank?
Part of the explanation is that regulators effectively want banks to "dumb down", to be less innovative because the global crisis demonstrated that financial innovation equals over-complicated derivatives, which are regarded as being potentially as lethal as a Chernobyl-style nuclear meltdown.
They want banks to limit the invention of risky products and activities, which stifles creativity and salaries. A regulation-led global banking industry means that every banker's main purpose is to conform to regulation before making profits. Banking is intent on becoming a dreary, almost lobotomised profession.
Besides the avalanche of bad publicity that the banking industry has inflicted upon itself over the past seven years, banks have been the victims of the very markets they depend upon. Regulation and compliance demands are not receding. Not only are the working hours mercilessly long, but they appear pointless - especially to graduates in an internet-driven world.
Google's US$150,000 starting annual salary almost matches Goldman's US$160,000 for fresh graduates. But Google offers so much more than a paycheque. The lure of Silicon Valley, the west coast lifestyle or working directly for Larry or Serge at their secret lab Google X, which hired some HBS grads, fires up vivid imaginations. The remuneration at major tech firms can surpass Wall Street salaries at any level.
Even big asset managers such as BlackRock and Fidelity are experiencing difficulties. Candidates prefer to work at private equity, venture capital or hedge funds that offer higher performance incentives and more exciting investment mandates. In a near permanent quantitative easing world, running mutual funds that chase beta or track indices can be a mind-numbing vocation.
Technology is the last industry that has not been ruined by government regulation, so the opportunities are endless. Doing a start-up is more attractive than participating in a flawed industry. The possibilities can be quirky, too. Angel investors have been willing to pay HBS grads US$100,000 a year to search for opportunities to invest in.
But, the greatest problem facing bank hiring is that HBS graduates have no faith in banks' bonus framework. Deferred bonuses and bonus clawback penalties may please regulators, but they have proven very unattractive for graduates with Silicon Valley dreams.
Peter Guy is a financial writer and former international banker