Krawcheck's Pivot Move

Krawcheck unveils a new index and fund

There might have been a time when industry analysts would have bet it was just a matter of a few years before Sallie Krawcheck would climb into the CEO's seat at a major bank.

Her rise through the ranks at Citi was swift and included a stint as CFO.  She subsequently held senior roles in asset and wealth management at Bank of America. But in both places she crashed upward into a ceiling, shoved aside from senior, sector-leading roles after being just steps away from the CEO's front door. She was not yet 50.

Some who followed her career might not have wagered that she would become the next CEO at Citi or Bank of America, but many might have bet that a known regional bank would have asked her to leave New York's financial cauldron and lead a smaller institution in banking's regulation-challenged new era.

Her days at Citi and Bank of America are apparently done. And since then, she has not shied away from reflecting upon her experiences in why she might have been dismissed and wondering whether Wall Street is still reluctant to let women lead major financial institutions. Many major banks have had women in significant roles. JPMorgan Chase, Citi, BankOne, Morgan Stanley, and even Lehman Brothers had or have women in CFO spots.  Bank of America has had women in roles as Chief Risk Officer and Chief Marking Officer. JPMorgan had women as Chief Investment Officer and has a female CFO and head of wealth management. Nasdaq recently rehired a senior woman executive, who some speculate could run the exchange one day.

Yet something seems to happen--a dismissal, an unexpected downturn, a financial crisis, a bankruptcy, a different CEO and his new team--to get in the way of women rising and settling into the top spot.

In the past year, Krawcheck has assumed a different leadership role, preferring now to lead efforts to find pathways for women to seize important roles in not only in financial services, but all of global business. Hers is a different approach from Facebook COO's Sheryl Sandberg's Lean In strategy that encourages women, more or less, to look into the mirror, change some of their ways, and forge ahead aggressively.

 Krawcheck has adopted a take-action approach, ready to bang on corporate doors to force companies to do better about women in their corporate ranks. Last year, thanks in part to comfortable severance packages from her old employers, she bought out the women's finance network "85 Broads" and is using that as a platform to make the industry uncomfortable. She is preaching about industry's sluggish efforts to make the sheltered circle of financial services--at its highest levels--more welcoming for women.

Just days ago, she announced the formation of an industry scorecard, a new index along with a new fund, that will report publicly to investors and business leaders which companies are walking the walk. The financial index, the Pax Global Women's Leadership Index, will include companies that have significant numbers of women on their boards and significant percentages of women in senior roles. The index will highlight companies, she contends, that should be revered (and promoted) because women are in visible, impactful leadership positions.

The fund, the Pax Ellevate Global Women's Index Fund, will invest in companies that appear in the index. Krawcheck says companies that are successful in "gender diversity" have a track record for producing good returns for investors.

(Krawcheck, after acquiring 85 Broads, changed its name to "Ellevate," partly because of the old name's ties to Goldman Sachs. Goldman's old headquarters were located at 85 Broad Street in the Wall Street area. She wants to expand the network beyond its investment-banking roots and its Goldman Sachs birth, and some might have advised that "Broads" in reference to improving the business prospects of women might not work well in Dubuque.)

As the index and fund are launched, what's the current scorecard with some major financial institutions--for women and for those in other under-represented groups?

For the past couple of decades, the industry had taken token steps. You could always count on major banks, broker/dealers, insurance companies, and asset managers to have one or two women and one or two minorities on boards of directors. You could probably count on the same institutions to have a woman leading a small fraction of a bank's major business units or acting in a one or two major corporate-staff roles. But you couldn't count on financial institutions to promote regularly a woman into the president's or CEO's office, and you don't see boards of directors where more than half comprise women or minorities. As the index and fund are launched, few financial institutions have met the initial qualifications to be included. (US Bancorp is one bank that will be included.)

Let's take a peek at the leadership landscape at selected financial institutions today. What do the board numbers look like in 2014?

1.  Goldman Sachs. Ruth Simmons, president of Brown University at the time and an African-American woman, served on its board until 2010.  But as she was departing, certain factions attacked Goldman for haven chosen a university president not experienced in the complexities of capital markets, derivatives and corporate finance, especially in midst of the financial crisis.

Nonetheless, she brought many other important experiences, skills and judgment to board discussions. Remember, Brown has an endowment in billions, and Simmons managed a large organization with several silos of departments led by smart, stubborn professors, populated by thousands of smart students. Sounds somewhat like Goldman. So why wouldn't she have been qualified at Goldman?

The criticism might have influenced Goldman in selecting other board members, but the firm later appointed another woman college president to the board (Debora Spar of Barnard College) and--to its credit--didn't seem to be moved by voices assessing who was and wasn't qualified to serve on its board. 

Goldman's numbers are adequate, at best.  Two women and one black (Adebayo Ogunlesi, who once held senior positions at Credit Suisse) serve on the board.

2.  JPMorgan Chase has two women on its board and has had a history of having one or two African-Americans (including long-time board member, the late Congressman Bill Gray).  In recent years, it has had women in CFO roles or women managing large business units.  But when people dare to speak of CEO Jamie Dimon's successor or those on the short list to lead JPMorgan in the 2020's, no woman appears to be a front-runner. 


3.  Bank of America has better representation. Four women serve on the board. Although Krawcheck left under unhappy circumstances, women have had major, visible roles the past decade (e.g, in risk management, wealth management, and marketing). 

3.  Applaud Wells Fargo, because its board ranks include at least five women, one African-American and two Hispanics, unusual representation for a financial institution that large. The bank chose the eight or more because of their experiences and leadership, but don't discount how much Wells Fargo, a major commercial bank with footprints in diverse communities, values the business it does with these groups.

4.  Richard Parsons, an African-American, once served as Chairman of Citigroup. Hence, it has had its significant first.  Three women serve on its board today.

5.  Some companies, powerful and profitable in the industry, conduct much of their business transactions out of the public (or individual consumer's) eye. They might not be attuned as others are about diverse representation at the top levels.  

Blackstone, the private-equity firm, roams the top in its sector. Big, powerful, successful, it conducts much of its business in private, out of the headlines, or often in the back of the business pages in the media. It doesn't advertise its services in TV commercials or online ads; it doesn't need to or want to.  It has only two women and no African-Americans on its board.   

Lazard, the boutique investment bank with major corporate clients, has no women and one African-American (Richard Parsons, formerly of Citigroup and recently announced as the top executive of the Los Angeles Clippers). To its credit, Lazard has had African-Americans in senior banking roles.

6. Count on Kenneth Chenault, CEO of American Express, who happens to be African-American, to ensure his company sets examples for all major financial institutions. And it does.

Many bank leaders will say privately they welcome women and those from under-represented groups, but can't find them. Chenault and American Express seem not to have had that issue.  Its board includes three African-Americans and three women.  Other institutions usually (a) don't see this as a priority, (b) don't make concerted, painstaking efforts, and/or (c) are so mired in other issues (regulation, business downturns, slow growth, or challenges from shareholder activists) they overlook the importance of broad representation.

7.  Capital One, AIG, and eTrade have two women board members each.  Notice a pattern? JPMorgan and Goldman also had two.  These financial-services companies seem to have stopped at two. Since it's 2014, many will likely ask themselves, "What's good enough? What's appropriate?" Two seems to be that number and, unfortunately, has been that number for about two decades.  (Some of the same institutions have had two women and one or two African-Americans or Hispanics on their boards since the late 1980's.)

Krawcheck's campaign (managed by her organization, the new fund, and the new index)  hopes to push companies to do better.  Companies, she would contend, need to get beyond settling for a number and patting themselves on the back.  Companies must recognize there are women and members of under-represented groups who are qualified to serve and lead (from vice president to managing director to CFO and CEO and board membership).  Financial institutions should open their doors, Krawcheck suggests, or else....

Tracy Williams

See also:

CFN:  Fighting the Gender Fight at Harvard Business School, 2013
CFN:  Muriel Siebert, Wall Street Pioneer, 2013

Vista's Smith Found a Way

Smith started Vista after leaving Goldman

Much has been said or written about how difficult it is to crack barriers at venture capital and private-equity firms. Quite a lot--enough to discourage some MBA graduates in finance with genuine interests in long-term investing from even bothering. Similarly much has been said and written about the scarcity of women and under-represented minorities in important roles in private equity--as investors, fund managers or principals and founders.

Most in finance, however, know the impressive rewards that are reaped in private-equity investing, conducted at such big names as Blackstone, KKR, Silver Lake, and Carlyle. Many gasp at the cascade of wealth generated by venture funds scattered about the Bay Area on the West Coast.

However, the story of Vista Equity Partners is hardly known, and perhaps it should be. The private-equity industry is aware of Vista, because the big firms and their leaders and the big investors keep an eye out on each other. Major banks know Vista and all the other firms, because banks sit side by side with them in the big deals they all seek to do.  The principals of Vista aren't likely those who rejoice in telling their stories broadly, unless they do so in front of prospective investors when they organize a new fund.

Maybe it's time its story is told more prominently and thoroughly. The firm seemed comfortable allowing the New York Times  in April to report its unique business to a wide business audience.

Vista is one of the few large private-equity firms founded and led by an African-American, Robert F. Smith. Smith was a banker in mergers and acquisitions at Goldman Sachs, when he decided to move on from a blazing career in technology investment banking to help found a new private-equity firm in 2000, a daring move for someone who had reached a comfortable perch at Goldman.

Smith had taken challenging, but conventional steps before he had the idea of starting a new firm. They were tough, methodical steps in a process that helped him understand the mechanics of private investing, understand at expert levels a sector of the technology industry, and meet certain movers and shakers among investors.

He went to Cornell to become a chemical engineer and got work experience at Kraft General Foods before he pursued finance and the MBA at Columbia. Attracted to his credentials and the academic milestones he racked up at Columbia, Goldman Sachs brought him on board and inserted him on a career trek that could have eventually thrust him into the most inner management circles at the top of the firm.

But right near the peak, he slipped away from Goldman's privileged banking club and decided to do what might have been the impossible in 1999-2000, when the dot-com bubble burst and the technology industry was running in circles trying to determine what would happen in the second chapter of the Internet: He started a private-equity company focusing on business software.

Fourteen year later, Vista is a player, managing $10 billion-plus across several funds, regularly attracting large institutional investors and proving that it can generate sound, consistent returns. Smith, in fact, told the Times that investor returns have exceeded those at Warren Buffett's Berkshire Hathaway.

(The Times tried to get more specific details about those investment returns, but verified that Vista's returns rank among the best in the industry. Buffett might rebut that achieving higher returns are harder when you manage a capital base 30-times higher and must respond to a more fickle group of investors, who happen to be public shareholders.)

Vista ought to be better known beyond private-equity circles, a little bit to broadcast the successes of a black CEO of a large private-equity organization, a lot to show how Vista has proceeded on a different course.

Those not familiar with private-equity investing might reason that success comes from accumulating massive amounts of investor funds and spraying them across industries, wherever growth opportunities peek out and wherever strokes of luck and fortune might rain down.

With offices in Austin, San Francisco and Chicago, Vista has a more disciplined, defined approach. Like most private-equity firms, Vista has a management company that oversees investments across several funds.  Vista is currently organizing its fifth fund. Investors are typical large institutional investors:  pension funds, school endowments, other asset managers, etc.  The Vista funds invest only in technology companies involved with "enterprise software," basically companies that create, develop, sell and/or license software to other client corporations to use to run their businesses. Each fund has slightly different investment approaches and timetables that match investors' objectives.

Vista's investment portfolio hardly strays from "enterprise software." It invests in few companies, not an army of software firms. It prefers to have a majority stake in a company and to be the only outside investor to avoid clashing with other big-stake investors and to have greater impact on operations and strategy. It uses ownership leverage to have a seemingly intrusive, but strategic role in operations. Companies, with sales in a range from $100 million-$1 billion, are typically still growing, looking for new markets, and might be encountering operations hurdles.

Vista just doesn't invest, appear at board meetings and provide occasional advice or guidance. It immerses itself in a company's operations, implementing detailed financial requirements and goals, coaching and training management, expediting "follow-on" acquisitions that enhance the business, and even inserting itself into recruiting new employees.  While it has consistent success, some detractors have, of course, complained that Vista, in its role, has dismissed unproductive managers and reorganized businesses without purpose--common responses to actions taken by private-equity investors with large stakes.

Because of its greater operations immersion, Vista will likely maintain ownership and control of a company over a longer term than other private-equity firms that aim for a swiftly arranged IPO or sale.  Some examples of Vista investments follow:   Mysys provides software for financial institutions for banking functions, trading, risk management, and portfolio management. Accruent offers software solutions in the real-estate industry for building construction, development and facilities management.


MicroEdge has a client base of foundations and non-profit organizations to which it sells software for grant-making, management and monitoring. Newscycle Solutions peddles software for news media to manage circulation, content, and customer relationships.

How did Smith do it? How did he find a way? A combination of factors might explain it.

He amassed expertise in finance--from tools he learned in business school and from the experience of hundreds of deals, transactions and difficult client negotiations while at Goldman. At Goldman, he participated in some of the largest, most complex deals of that period.

He gained expertise in the technology industry--with experiences in engineering, physics, computers and quantitative analysis from his engineering degree and business-school training, as well as Goldman banking experiences.

Confidence with clients, in business negotiations and in business challenges grew from responsibilities and experiences at Goldman. Such confidence and a reputation for accomplishment likely helped him assemble a talented team when Vista launched. At Vista, Smith is the lead principal, as CEO, but he doesn't do it alone. He manages a team with relevant expertise and backgrounds. A handful came from Goldman.

At Vista, Smith and team have shown discipline by sticking steadfastly to a tried-and-true investment regiment. They have not been teased by industry sectors not familiar to them, nor to they tread on territory beyond their comfort zones.

Just as important as any other factor, it helped that investors were willing to take a chance with Smith and his firm, willing to take risks and buy into the firm's parochial philosophy.

And then all these factors had to fall neatly in place in timely fashion.

If Vista is like most private-equity firms, it seeks not to attract too much media attention, if only to discourage others from copying its philosophy or chasing after the same investment gold-mine findings (which bids up acquisition prices). But Smith doesn't mind broadcasting one off-shoot he and Vista sponsor, a special venture called Project Realize.

The project is intended to help managers and owners in small companies in big cities. Smith, with Vista support, selects a small business, typically with less than $25 million in revenues and engaged in a processing business. Project Realize coaches its managers as part of a formal growth program. Participants are shepherded through all facets of finance, marketing and operations. Vista helps them achieve targets in revenue growth, operations efficiency and funding.

Some might see this is as an "incubator" for established small companies operating in various industries.  Smith sees this as an "adoption" of a company for which Smith and his Vista network provides priceless consulting services in management, strategy, operations and finance. In some ways, the services they provide are far more invaluable than if they had provided investment funds and captured board seats.

It's probably not an accident that Smith, the one-time chemical-engineering major, selected Cedar Concepts Corp., a chemical-manufacturing company, as its Project Realize's current project.

Tracy Williams

See also:

CFN:  Horowitz and his "Latest Venture," 2014
CFN:  Knocking Down Doors in Venture Capital, 2012
CFN:  Venture Capital Diversity Update, 2011

Buffett: 2014 Take-Aways

Buffett:  Ignore the bark of daily stock prices, he recommends

Each year Warren Buffett's Letter to Shareholders is a remarkable feat. His discussions of business lines, operations and performance are conventional. But Buffett, as Berkshire Hathaway CEO, intersperses passages about profitability with stories and lessons for investors of all types and ages.


Each year you wonder how is it possible for Buffett to top himself. What more enlightenment about long-term investing could he possibly share with shareholders and even investor novices?

Each year, nonetheless, he picks a couple of business topics, sometimes controversial, sometimes complex. He wrestles with the topic, explains it in simple terms, ties it to real business experiences (often his own past success stories) and  offers a special lesson for long-term investors. His audience includes long-term investors.  He seems to have little time, tolerance or patience for short-term traders. 

This year after reviewing Berkshire Hathaway's activities in railroads to insurance companies , Buffett told a couple of stories--one about a Nebraska farm and another about a retail store near NYU--investments he made a long time ago.

In both cases, he boasted about having almost no involvement in either one. He has never bothered to visit the farm and the store (maybe once or a forgotten second time), but both have been successful, thriving investments, based on simple principles. Buffett sums up:  Corn will always grow on his Nebraska farm. Students will always be around and about NYU and will always need a place to buy clothes, snacks, supplies and groceries.

Buffett abhors the fears and panics induced by daily stock-market volatility. For years, he has encouraged investors to avoid staring at daily stock prices and indices. He has advised investors that the best times to buy stocks is when markets have plunged. Yet he knows, no matter his wisdom and his experiences, investors will still watch market upswings and downturns, still be swayed by pundits on CNBC, still be influenced by Wall Street Journal headlines, and still be tempted to follow the masses when determining when to buy and when to sell.

In this year's letter, he offers a story about his Nebraska farm to explain why investors should shut off their ears and eyes to daily stock-market emotions.  Consider the scenario (his shared experience) where, he says, your Nebraska farm is well-managed. It produces corn consistently year after year and distributes produce widely, resulting in stable profits annually, because people eat corn and will continue to do so. Now imagine if a man (or groups of men) stands at the boundary at a fence and barks and screams prices for which he will offer to buy your farm—every day, all day long, non-stop. Imagine, as well, the man's fluctuating offering prices—surprisingly high offers, inexplicably low offers. Prices and prices, echoing across your cornfield.

What an annoyance that can be, Buffett suggests. The man screaming numbers at your gate interferes with the day-to-day requirements of running a thriving business. When it’s time to sell the farm, you’ll know. It just so happens that Buffett hasn't bothered to sell. He still owns his farm, still reaps the benefits of increased cash earnings each year,  and boasts that, except for reviewing operating performance, he never needs to be involved or be present.  He says the annoying, barking man is like the annoyance of stock-market tickers that get in the way of operating a business or presiding over an investment.

Inevitably, in a Buffett letter to the public, some themes repeat themselves. He doesn’t necessarily forget what he wrote in years gone by, but he seems to want to emphasize some points, perhaps points that weren't digested thoroughly in previous shareholder messages. For example, he refers once again to his invaluable security-analysis tool book, Graham & Dodd’s Security Analysis, the comprehensive investment-management text he absorbed while in business school at Columbia many moons ago.

Buffet once again devotes passages to explain the insurance business, seeming to want to convince readers and investors how an apparently aged, dull industry can lead to promising investments if companies do the following: (a) Manage expenses carefully, (b) be realistic and conservative about expected losses, and (c) price premiums carefully.  And once again, he rallies and cheers for his company’s ownership in the popular insurance company Geico, a company in which he has had a stake for decades.

Buffet and his troops have always been shrewd risk managers, preparing for difficult times or exploiting difficult times to find investment bargains. This year, he mentions in passing “liquidity risk management” at Berkshire, discussing briefly a company policy to maintain billions in cash reserves and minimize short-term debt to avert the risks of rising interest rates, to be ready to pounce on any opportunity, and to not be caught off guard in managing liabilities and other debt. Berkshire doesn’t despise or avoid debt; it just prefers it long term.

What else is on Buffett’s mind in 2014?

He tosses out a phrase “circle of competence” to instruct investment analysts to forecast operating earnings based on what they know and what they can grasp.

He mentions some of his favorite blue-chip stocks, investments anybody can step up to purchase, not merely significant investment vehicles like his company. American Express, Coca-Cola, IBM, and Wells Fargo are current favorites, and he explains why: Growing revenues, stable and sustainable profits, managed risks, global operations, and reliable products and services.

“We much prefer owning a non-controlling, but substantial portion of a wonderful company to owning 100 percent of a so-so- business,” he writes. “It’s better to have a partial interest in the Hope Diamond than to own all of a rhinestone.”

So what are other take-aways from Buffett’s 2014 finance lecture. His lessons are straightforward, easy to digest, sometimes hard to accept how simple they are. Some lessons are principles to abide by when managing companies and investment portfolios.

1. He reminds all that you don’t need to be an expert to achieve satisfactory returns.

2. Keep things simple, he says. “Don’t swing for the fences.”

3. In assessing the value of companies, focus on future production, recommending that historical numbers should be shunted aside (although a peek at history of performance may tell a story about the competence of management or the potential for assets to generate profit).

4. Focus on the “playing field” (operations, products, costs, industry dynamics), he writes, and not “the scoreboard” (stock prices, stock indices, technical market analysis, market momentum).

The vagaries and emotions of stock markets enveloped his mind this year. He reminds readers how much they enjoy their Saturdays and Sundays without paying attention to stock prices and advises them to enjoy their weekdays, too, by ignoring the crawl of market prices on CNBC or the wails and headlines about market trends from business journalists.

Tracy Williams

See also:

CFN:  The Word from Buffett, 2013
CFN:  Merger Mania, Boom Times Ahead? 2013
CFN:  Shareholder Letters at Financial Institutions, 2010
CFN:  Jamie Dimon's Shareholder Letter, 2011

Horowitz and His Latest "Venture"

Horowitz:  Fighting to open doors

Many MBA students and graduates who covet careers in finance perceive venture capital as closed-door clubs whose members operate by making quiet, stealth financial movements:  first-round funding, mezzanine funding, second-round investments, and then--bang!--the IPO.

Members of the club fight fiercely to determine and support the next new thing. They prefer to locate in offices near each other, the better to watch each other's steps and moves. They respect each other and occasionally band together to do deals or share ideas.

To those on the outside, the doors to the club appear bolted, opened only to outsiders who bring influence, contacts, funds, and technology patents. It is arguably the toughest network in business or finance to penetrate.

Andreessen Horowitz is one of the most acclaimed names in venture capital in Silicon Valley.  At Andreessen Horowitz, Marc Andressen is the better known name of the two.  He is the one out  front, the prodigy entrepreneur who helped create the popular Internet browser Netscape back in the 1990's. After a series of glowing entrepreneurial successes, he decided he preferred to invest in new things instead of running or operating them. From a Valley perch, he gets to decide what that next new thing will be.

He and Ben Horowitz formed their venture-capital group in 2009 after they "retired" from the life of managing the struggles and swirling phases of new companies (including also Loudcloud and Opsware).  They still dabble in new ventures and sweep across the landscape to decide which ones are worthy of their mentoring and money. They ditched their days of spending every waking hour building a new company and now run investment funds exceeding $2.5 billion. They were first-round investors in Twitter, Groupon, Zynga, and Facebook.


Andreessen is the one the business media go to for quotes and perspectives on the Valley and opinions on matters related to California's fragile economy, social media, and technology innovation. He has been a news item for much of 2014 with his spats regarding investments in Skype with investor Carl Icahn. Just this month, he declared Warren Buffet too old to understand technology investments. 

Ben Horowitz is the "other" guy, the other name on the door, although he doesn't shy away from media attention. In fact, he has written a popular blog to share his thoughts on topics ranging from  technology to business strategy, management challenges, and human resources. Sometimes he tackles accounting topics and world politics.  He shares lessons he learned in running companies that stumbled now and then on their way to financial health.

With a new book just published (The Hard Thing about Hard Things) and a Fortune magazine cover, he isn't avoiding publicity. Of course, he wants to sell  the new book, but he claims he wants to open up bolted-down doors of venture capital and technology entrepreneurship to those who have been shunned, those who were discouraged, and those who haven't benefited from the bundles of wealth that new ventures sometimes spawn. This includes those from under-represented minority groups--blacks, Latinos, and women.

Horowitz, as a successful mentor in a second phase of adulthood, is pushing the door slightly ajar, hammering a few cracks to permit others to take a peek and perhaps rush in. In recent years, besides presiding over a portfolio of investments with meteoric returns, he has devoted substantial time in roles as mentor, teacher, or coach to show those who never dreamed of starting a company or working in venture capital they might have the knack for it.  For new entrepreneurs, he lays it out: How to get the company going, how to keep a company growing and solvent. And he tells the truth: It will be hard.

Stories are widespread about Horowitz's ties to the black and Latino communities in Oakland and Los Angeles, his attraction to hip-hop culture, and his nose for finding entrepreneurial talent in areas outside the cloaked venture-capital huddles in the Bay Area.


His new book is a guidebook for those on both sides, those inside the right circles and those outside.  He offers advice on how to manage the toughest aspects of starting a new company and keeping it alive. He provides lessons from his own hiccups and failings when he was a CEO, mostly at Loudcloud, where he harnessed the company through periodic tumbles and upturns before it was finally sold.

This is not a book of romantic reflections in building a company, nor a storybook of tales of how a product idea results in easy profits and returns. It's nuts, bolts, and late-night worries of how his company will generate cash flow to make payroll. It's about what managers should do to dampen debilitating office politics. And it's about about difficult decisions entrepreneurs will inevitably encounter to keep companies alive:  Do you sell the company, sell a unit, lay off staff, seek another round of capital or transfer out an ineffective manager?

Venture capital and private equity reside on the periphery of entrepreneurship.  Venture capitalists and private-equity investors sit in the middle of the ring to help managers in strategy, funding, hiring and product distribution.  This appeals to many business-school students, including Consortium MBA's.

However, the pathway to a prominent firm is tricky, uncertain, not neatly outlined.  The firms don't usually have close relationships with business schools. Many prefer to hire and recruit based on their own needs, schedules and whims.  And most are indifferent to general diversity hiring practices or objectives. Many support diversity initiatives, believe in them, but don't make it a public priority.

Unless MBA students have an entree, somebody they know, somebody with whom they went to school, a previous tie, acquaintance, professor or contact with a senior principal, then an entry-level spot in a major firm is almost impossible to garner. Nonetheless, it's the in-depth experience in deals, transactions, industry, corporate finance, and firm valuation that new graduates covet and need--and don't get if the doors are shut.

Signs indicate that with support from respected people like Horowitz, people who bark and insist that opportunities be made available to a wider community, some of these venture-capital doors might crumble. Horowitz, by the way, has announced that his portion of the proceeds of the book's sales will go to women's programs.


Consortium students and graduates for years have expressed interest in venture capital and private equity, even if they know they will encounter obstacles in getting inside.  They know they can't raise hands, express an interest, prove talent and experience, and then expect job offers to flow in.

Some have gotten the chance to work at big-name firms (Carlyle, Kleiner Perkins, Sequoia, and Blackstone are examples of "big names"), regional firms or firms that specialize in an industry niche or geography (real estate, manufacturing, consumer goods, the Sun Belt). Because of obstacles or because they were discouraged, others simply decided to pursue more welcoming and more familiar sectors in finance.

And then some try the boldest of tactics. They have gone off on their own to form their own small private-equity or venture-capital companies. (Capital A Partners and Romherst Capital are examples of private-equity companies launched by Consortium graduates.) They opted for the toughest road with the greatest challenges, but possibly with the best experiences and maybe with superb performance and returns--and a chance one day to bring others like them into the fold.

Horowitz, needless to say, would be pleased with these kinds of efforts.

Tracy Williams

See also:

CFN: Venture Capital Diversity Update, 2011
CFN: Knocking Down Doors in Venture Capital, 2012
CFN:  Making Demands on Diversity, 2013
CFN:  MBA Diversity:  A Constant Effort to Catch Up, 2012
 

How Will Steven Cohen's Saga End?

Should investors take the money and run?

If you were fortunate to invest in Steven Cohen's hedge fund, what would you do? Keep the faith, and keep your funds in SAC Capital Advisors?  Or take the money and run, while government investigators pore through trading records for evidence of insider-trading?

How will the SAC Saga end?


Tucked away along I-95 on the winding hedge-fund corridor in Connecticut is the home of the closely cloaked $14 billion hedge fund run by Cohen.  In the world of quantitative trading and hedge-fund investing, Cohen's SAC Capital is well known, envied by many, desperately copied by others, and revered by most in the investment community. These days, the fund is known outside the hedge-fund world because of  the investigative cloud that lingers above it.

Since its 1992 founding, an obsessed Cohen permitted few to learn about his fund's operations, performance, and trading strategy.  For most of the fund's existence, Cohen avoided public appearances and showed up nowhere if media appeared, except for arts and charity events. (His investments in art are legendary.)

He refused to let others take photos of him. The New York Times or Wall Street Journal published over and over the same one or two photos it could find of him in articles that chronicle the fund's history. The industry factions that follow, watch, report and try to ape his successes hardly knew or understand what went on inside. Forbes magazine estimated his net worth recently to be about $8 billion. The fund eventually reached $14 billion under management.

Nowadays headlines of SAC appear routinely in the financial press. Photos of Cohen accompany many news stories, and his face has become more familiar.  News about the fund has been sour for much of the past year or two, because the news is primarily about insider-trading investigations. 

SAC made its billions from equity trading.  Under Cohen's direction, the fund sponsors many strategies, including high-frequency trading (searching for price anomalies around the globe), fundamental and value trading, and quantitative analysis.

Former analysts, traders and researchers at the fund--after they have departed or were dismissed--have divulged morsels of SAC intelligence.  Cohen is the quarterback and captain of all trading activity, his hands always involved, his voice wielding a final say-so in trading positions and strategies. He grooms strategies, hires stalwart traders, and entrusts them with significant amounts of capital, permitting them to try out their ideas or execute their trading views.

But he was said to be harsh if performance waned or fell shy of his expectations.  He pushed traders hard, not merely to "seek alpha" (as the hedge-fund jargon goes), but to out-perform even the toughest fund benchmarks. Traders are dismissed swiftly if they don't meet targets.

Traders felt the pressure to find an edge, a trading strategy or a performance trend that would please the boss.

Over the past few years, some former traders have been accused and indicted of insider trading at funds they managed after leaving SAC. Some former employees have been accused of illegal trading while at SAC Capital.  The SEC continues its investigation of trading under Cohen's supervision. He has insisted throughout he is innocent and, in recent months, has delivered strong statements assuring investors that from his top perch he has applied tough discipline to make sure the firm stays within legal lines.

Meanwhile, regulators and law-enforcement officials comb through, around and about SAC.  SAC Capital and Cohen may never be charged of anything, but right now, a stench hovers above the fund and seems to have settled there for a long time to come.  Some investors want out--now. The typical redemption rules apply. Investors can get out, but only after applying for withdrawals and then allowing their monies to trickle out over time. 

With investigators in its backyard searching through voluminous trading records, what will eventually happen to the fund? Why would investors want to hang around and leave large amounts of money with Cohen? He has an impressive performance record, but will he admit that he is distracted by the legal cases and investigations around him?

What does an investor do? There are two or three options.

1) Get out now or when redemption rules allow. 

Certain institutional investors (perhaps pension funds and public funds that answer to a broader community) will flee, because they will not want to explain to stakeholders why they are allied with a fund where illegal activity might have occurred and where there exists the possibility, even if remote, that the fund's founder will one day be indicted like some former employees.

2)  Assess the likelihood that Cohen will one day be charged, an event that would likely lead to the subsequent wind-down of the fund.

If that assessment exceeds 50-50, wage the bet that the fund will continue and, with distractions beyond it, performance will resume at stellar levels. Because there are and will be redemptions, Cohen may scale down the fund, reduce the number of strategies, and make itself nimble.

3) Assess the worst-case scenario:

Cohen is charge and indicted, and the evidence is strong enough for a conviction.  The fund would likely wind down. But markets, regulators, banks and investors must weigh the impact of a liquidation.

Would the impact cause as much market chaos as the frightening collapse at Long Term Capital did in 1998. Its stunning, sudden implosion pushed markets to the brink of apocalyptic turmoil and forced government overseers to assemble a bank group to help settle the chaos.

In this case, would regulators step up in the same way to ensure the disposition of assets, positions and employees is handled in an orderly manner and with minimal impact to markets? Or would a group of neighboring hedge funds, down the expressway in Connecticut, sweep through to bid for the portfolios and positions and hire its expert traders?

Stay tuned.  This is a summer-time saga, likely to drag out through the fall and long enough to bore most market observers, until one day months from now government investigators surface one late Friday afternoon to catch everybody off guard with surprise announcements.

Tracy Williams

See also:

CFN: Ray Dalio's Cult at Bridgewater Associates, 2011
CFN:  Quants and Quant Funds, 2010

What Will Dimon Do?

WWJD. Not what would Jamie Dimon do? But what will Jamie do?

Waiting Anxiously for the Shareholder Vote

In a matter of days, JPMorgan Chase shareholders will find out the results of a crucial vote to determine whether Chairman and CEO Jamie Dimon should relinquish  his role as Chairman of the bank holding company. In a similar vote last year, 40% of shares outstanding voted for him to give up the role as Chairman.  A year later, Dimon and JPMorgan have had to digest continual impact from the billions in trading losses in the infamous "London Whale" credit-derivatives debacle. They have endured stiff criticism from regulators for how JPMorgan managed those losses and for how regulators perceived the bank was behaving in response to inquiries.

Dimon has already been penalized for "Whale" mistakes when his 2012 bonus was reduced, even as JPMorgan continued to generate extraordinary earnings last year and in 2013's first quarter. His inner circle of senior managers (operating committee members) has changed faces substantially with some departing, some nudged out, and others promoted.

(JPMorgan reported record income of $21 billion in 2012--good enough for a 15% return on equity. It earned $6.5 billion in the first quarter, 2013. By year-end 2012, the bank reported assets exceeding $2.3 trillion supported by an equity base of over $200 billion.)

Some shareholders, who have large stakes and have stepped into activist roles, want to make sure such trading losses or astounding surprises in mismanagement will never occur again. They want to reorganize board membership, juggle risk-management oversight, and put more checks in the checks-and-balances of Dimon's power over the organization.  In effect, some contend that JPMorgan-related mishaps might not have occurred if Dimon had a chairman peeking over his shoulder.

As the vote counting winds down, the question for the moment is not what should Dimon do or what would he do.  The question? What will he do if the role of Chairman is seized from him?

His storied banking resume' indicates he doesn't like playing second-fiddle. He's comfortable biding a little bit of time as he awaits a top spot, but he fidgets and fumes if the wait is prolonged. Moreover, certainly he wouldn't want to give up power, authority and influence he has had for eight years or more.

Since he has been JPMorgan's head, he has not had a formal second in command, a president waiting in a green room for him to retire.  When JPMorgan purchased Bank One ten years ago, where he had been Chairman and CEO, he agreed to be President and CEO-in-waiting.  Typical of Dimon, he itched to assume full control of the bank sooner than he was supposed to. From the moment he arrived in New York from Chicago, he aggressively pushed his agenda of expense-control and balance-sheet strengthening, while then-CEO Bill Harrison was still in office.  Back then, Dimon urged the board to make him Chairman and CEO months ahead of schedule. That was no surprise.

Before JPMorgan and Bank One, Dimon had made his mark at Citigroup. As Sandy Weill's long-time protege' when the two of them built a financial-services behemoth during the 1990s, Dimon, over time, agitated his boss, even undermined him. Eventually a power struggle and some fiery situations caused Weill to fire his favorite deputy. Dimon might have been the CEO of Citi today (and Citi might be a much different organization), if he were willing to play fair and square with Weill.  Weill had the last word, and Dimon went on to make financial history elsewhere.

What will Jamie do if he's no longer chairman of JPMorgan?

Will he remain as CEO and proceed to manage the bank in the way he has since the financial crisis--expanding in all areas, controlling costs and operations, restructuring the mortgage businesses, and hustling to keep a trillion-dollar bank under control? Will he be willing to subject his strategy, actions, and every managerial move to the second guessing of a non-executive chairman--especially when Dimon hasn't been accustomed to such in the past decade?

Or will he agree to finish out the year or two as CEO and opt to retire sooner than he expected? Will he cooperate, manage the global business, and assist in selecting a CEO successor and grooming him or her? Will he cooperate, too, if only to ensure his own shareholder stake in the bank (over hundreds of millions in ownership) is not jeopardized?

Amidst this debate of corporate governance, many have taken sides. Some have pointed to studies that show the impact of separating the two roles.  Many of the studies indicate little, if any, favorable impact on a company's revenue or earnings growth or stock price when the roles are separated.

Jeff Sonnenfeld, a senior associate dean at Yale's School of Management, a Consortium school, in The New York Times this week called the shareholder vote at JPMorgan a "Jamie Dimon Witch Hunt" and reminded readers that some of the most scandalous companies in the last century, including Enron and Worldcom, had separate Chairmen and CEOs.

Other experts point out the decision to separate should not be determined by previous studies, but by the particular challenge or issue that confronts the company. Case by case, they say. In the case of JPMorgan, the challenges are to (a) manage the complex risks and operations of a financial institution almost too big to fail, (b) respond to, report, and manage the escalating requirements of regulators, and (c) meanwhile, continue to grow revenues, earnings and a stock price that seems to have trouble eclipsing the $50/share threshold. Some of the proponents in the shareholder vote think JPMorgan can overcome these kinds of challenges with two people in charge.

But what happens to JPMorgan and its ability to confront these issues if one of the two is not Dimon? Is Dimon about to bolt out the door?

Here are a couple of scenarios.

1.  Shareholders vote to keep Dimon as Chairman, but the vote is close, say 51%-49%.  Dimon, therefore, won't linger or care how close it was. With a short memory, he will proceed along his recent course--cooperating with regulators, gearing up for Dodd-Frank and Basel III, reshaping his inner circle, and driving his bank leaders crazy, pushing them to increase revenues, manage all risks imaginable, and control costs.

Several recent scoldings from regulators and all the attention in the press about confrontations with lawmakers and regulatory bodies will keep Dimon focused on issues of risk, regulation and compliance.  The bank is re-engineering its organization from front to back to ensure compliance and help comfort outsiders to show Dimon has things under control in the way it seemed he didn't--momentarily--during the "Whale" crisis.

Events of the past year will encourage him to be more forthcoming with the public about his intentions for succession.  He might even quietly support the effort that his successors be a separate Chairman and CEO. In recent months, with the shuffling among those in the inner circle and by appointing people into the roles of COO, he has offered clues. But in the past, he offered hints of who were the designated favorites one year, yet changed the slate quickly a year or two later.

2.  Shareholders vote to take away Dimon's Chairman title, but permit him to remain as CEO as long as he wishes. Dimon will be wounded. However, he would be a professional, uttering the right remarks about his support for the new structure. He would also likely regroup and contemplate next steps. He would not be comfortable taking directions regarding strategy and the deployment of capital from a part-time Chairman, especially if he feels confident his sole leadership is the best course.

As an experienced professional and an investor who will not want boardroom turmoil to inflict unnecessary volatility in the stock price, Dimon won't pout and play spoilsport. However, the thrill and energy of running JPMorgan won't be the same. The power he wielded within the organization may not be the same, because the buck won't any longer stop with him.

He would likely plan a retirement over the period of a year or two. Following the footsteps of former CEOs, like GE's Jack Welch, known for being accomplished, premier business managers, Dimon will review his achievements, reflect on them, and will likely want to write about them (or teach them to a business-school finance class). He won't sit still and will pursue something bold. He'll want to advise future bank leaders on what went right, what worked, how it all worked, and what went wrong.

And it's likely then he'll insert the last word to say that separating the roles of Chairman and CEO at JPMorgan might have been something, in his case, that didn't work as well as the status quo.

Tracy Williams

See also:

CFN: JPMorgan and Its Trading Losses, 2012
CFN: Jamie Dimon on Regulation, 2012
CFN:  Jamie Dimon's Message to Shareholders, 2011

Why He Left Goldman

It was the culture, he contends

Recall about a year ago. It was the op-ed piece heard all around the business world, when Goldman Sachs vice president Greg Smith dared to announce his resignation on the pages of the New York Times. After an 11-year stint in its institutional sales unit, Smith announced he had had enough and it was time to depart. He decided to share publicly why his disappointments in the business culture led to his decision to leave a fairly lucrative position.

(See  CFN: Goldman Sachs and the Letter, Mar-2012)

At the time of his departure, Smith was head of U.S. Equity Derivatives in Goldman's London office. (In London, he was an "executive director," which at Goldman was equivalent to a U.S. "vice president.") He had progressed swiftly through the ranks and was highly regarded for his expertise in markets, clients and derivatives in his special perch. By most accounts, he was not a difficult employee and colleague. He had made meaningful contributions in many ways--building a new business in Europe, preparing  market insight in the form of frequent, written commentary to Goldman salesmen around the world, and agreeing to transfer to the London office, when he didn't want to.

The revered culture of clients coming first had evolved, he said, at Goldman in ways he felt uncomfortable. The crisis was partly at fault.  Every partner, managing director, vice president, and associate, he observed, was out for him- or herself. Survival was the mission of the day.

It boiled down to this, he observed:  The trading culture had evolved into a massive mission of accumulating "GCs"--gross credits, sometimes at the expense of doing the right thing for the client.  The value of the employee to the firm was determined by the total amount of GCs he or she accumulated during the year.

Mindful of this, the employee overlooks teamwork, partnership, and support for other colleagues and focuses singularly on maximizing GCs and, therefore, the year-end bonus, even if it means swiping GCs rudely and unfairly from colleagues or being willing to unload "toxic waste" securities onto unsuspecting or unknowing clients. 

So after he had his apocalyptic moment (on a business trip to Southeast Asia while Goldman executives had been summoned to a Congressional hearing), he decided to quit. As many expected, after the  op-ed blast in the Times, Smith went into hiding. He emerged from a  self-imposed rest when he published a book last fall to recount his experiences at Goldman and explain his well-publicized departure more thoroughly.  The book, Why I Left Goldman, received lukewarm reviews.  Reviewers and industry-insiders, and perhaps Government regulators, were looking for something more, perhaps a hint of scandal, a more detailed account of mishaps and fraudulent business practice. He presented none of that.

The book is similar to other detailed accounts of a young banker or trader's venture onto Wall Street. They are views from the ground up, from the trenches, from entry-level positions as the novice tries to adapt to the ways of a zoo-like trading room.  Smith's book reminds us Michael Lewis' Liar's Poker."

Smith is fresh out of Stanford and thrust onto a derivatives-sales desk.  Lewis had just graduated from Princeton and encountered the bowels of Salomon Brothers' legendary trading floor and lived to write one of the most spectacular, humorous accounts of Wall Street ever.  Smith's book is also similar to a lesser known, recent book, A Colossal Failure of Common Sense, by Lawrence McDonald of Lehman, an up-and-coming fixed-income trader, who viewed his last days at Lehman, not with sarcasm and humor, but with anger and humiliation.

Notwithstanding the so-so response to a book we knew he would write, for the newly minted MBAs, those who contemplate career paths in sales & trading at major banks, those who are considering institutional sales, the book has its strengths. It is an invaluable introduction to the trading floor, describing the environment, work pace, client groups, and specific roles.  Institutional sales will have an important role at big banks, as regulation prohibits much of proprietary trading.

Reform and new rules, whenever they are finally implemented in full, will permit the big banks (from Goldman Sachs to Bank of America and Citigroup) to engage in trading on behalf of clients, not necessarily on behalf of themselves.  Proprietary trading is being eased out of existence. Trading for clients will be permissible.  (Trying to distinguish between the two will sometimes be a nightmare for banks and regulators.)

Some will argue that as technology advances and clients get more comfortable with it, electronic trading and execution will replace sales professionals.  But as the book shows, sales professionals will be necessary to bring clients on board, help them with best execution, guide them through rough markets, and present new trading ideas.

Thus, the book provides a day-to-day overview of institutional sales and explains a conventional career path from analyst to managing director.  It describes the structure of a sales & trading organization, the management, and the relationship among sales professionals, traders, researchers, and floor brokers. It shows how the firm generates revenues from trades, the more difficult or exotic trades generating the largest commissions or mark-ups.

The book is a reflection on firm culture from the vantage point of the trading floor. Firm culture is important, but what is more critical is how the culture penetrates all activity, roles, relationships and transactions in the firm. Smith, in the book, contemplates firm-wide goals vs. personal goals, how the two intersect, but how they sometimes collide. And he shows how bad, selfish personal goals can be inferred from vague firm-wide goals.

Especially in the wake of the financial crisis, he highlights how personal goals sometimes became a higher priority than firm goals. In a vivid, poignant scene in the days after the collapse of Lehman Brothers as markets nose-dived, Smith watches a senior managing director on the trading floor glued in a silent trance to the computer screen, studying his personal portfolio of assets, having no care in the world with what was going on elsewhere with his clients or with Goldman.

Thirdly, Smith demonstrates the impact of corporate politics on a personal's career success. He had learned quickly, perhaps in his first few weeks, that success at Goldman or at any large financial institution would not be a result of effort, hard work, and time commitment. To get promoted to vice president or managing director, to have the opportunity to work abroad (in London, in his case), or to transition into a different role all required special networking skills. He would either have to learn those skills or rely on buddies, mentors or managers to guide him.

In his case, Smith wasn't a schmoozer. He was, however, fortunate to have advocates nearby on the trading floor, champions on his behalf, people who liked him and were willing to grant a favor or speak up on his behalf.  Generating "GCs" (or client-related revenues) could lead to a big bonus, but finding someone to spread the word about him could lead to a promotion. Over time, he learned to win favors in bars, accompany managers on business trips and bachelor parties, attend social functions and farewell receptions, and even allow clients to look good in parlor ping-pong games.

Diversity. Smith's book hardly touches the subject.  He had the opportunity to address it, because he describes himself as an outsider trying to find his way within a powerhouse firm. (He is a foreigner who grew up in South Africa before coming to the U.S. to go to college.)  He might have been so consumed by his frustration with how he perceived Goldman had evolved that there was much he couldn't get to. (For example, he barely discusses other parts of Goldman, including its investment-banking machine or its sectors in asset management, private equity or private banking.)

It appears, nonetheless, that women in sales & trading have had scattered chances to reach the highest rungs.  A handful of his bosses or senior colleagues, over the decade, are women. And he observes how they have had to evolve to survive or change to battle the machismo ways of trading-room trenches.

The fanfare around the op-ed piece book will likely fade into memory and become a mere, colorful chapter in the history of Goldman. Smith will likely move on beyond Wall Street. He learned a lot about global markets, clients, derivatives, financial products, exchanges, and business management. You can bet he has another book in mind. He highlights the foibles of certain banking cultures in this one. In the next, he'll probably present solutions.

Tracy Williams

See also:

CFN: How Does Goldman Do It? 2010
CFN:  Goldman Tweaks the Ladder, 2012
CFN:  The Role Goldman's Board, 2010
CFN:  Morgan Stanley Tries to Please Analysts, 2012
CFN:  The Volcker Rules, 2011

Making Demands on Diversity

Rogers: "We are just not fighting hard enough."

Last fall, John Rogers of Ariel Investments found a convenient forum to discuss the state of diversity in finance. At a SIFMA diversity conference last October, he scolded executives and the rest of the industry about the woeful numbers from under-represented groups in senior roles. "The state of diversity in the industry," he reportedly said, "is appalling."  He added, "Ninety percent of leaders talk a big game, but...we have gone backwards. We are just not fighting hard enough."

Rogers is Ariel Investments' founder and CEO. He, also, happens to be a pioneering African-American in the industry, one who has been a prominent investor and leader in mutual funds for 30 years. Hence, Rogers is no new kid on the block, not an industry novice who just appeared on the scene to make this striking, candid observation.  He has seen dozens of market trends and phenomena, endured more than a few volatile markets, and followed a few decades of diversity patterns. The patterns, he says now, appear to be as unsettling as occasional market collapses.

He stepped into the investment arena in the 1980s, and with sufficient backing and varied contacts courageously started his own mutual-fund company in 1983. Like many minorities who surfaced on Wall Street (or in Chicago, where he has always been headquartered) years ago, Rogers perhaps had high expectations regarding diversity. Perhaps he expected over three decades, minorities would have prominent, visible, and impressive roles in every senior niche in every aspect, perch or segment of finance--in banking, trading, investing, funds management, securities processing, etc. Everywhere.

Three decades would have been ample time for the first wave of large numbers of minorities and women in finance to appear now in substantial numbers in board rooms, corner officers, and trading rooms. Within three decades, blacks, Latinos, Asians and women should have prominent roles within  those hush-hush huddles that determine who gets promoted, who gets paid handsome bonuses, who is tasked on headline-wining deals, and who gets the precious amounts of capital that is allocated for business expansion and investment.

But in 2012-13, he tells eFinancial Careers: "It's unfortunate. One of the most lucrative parts of the economy; it's so dynamic, offering so much wealth, and people of color have not participated."

He adds, "Here in Chicago, at so many funds and banks, you can count the number of black partners on one hand.  That's just the reality of it. It's something that needs to be addressed.  People aren't demanding that industries reflect the societies in which they live."

In perhaps the final chapters of his career, Rogers is recommending that those in positions of influence should call for or take bold action: Make stronger demands, ask questions, and push harder for banks, firms and funds to do something. He recalls an occasion recently where, in working with a bank on a specific negotiation, he asked curtly why he didn't see minority representatives. By the next meeting with the same investment bank, he said, the firm had hired its first black banker.

Why might it be time for bold, aggressive tactics? Why do his words resonate? It's likely frustration and disappointment after so many years of effort. It's the puzzlement about what can be done and where do go from here, especially as major institutions struggle with current business models and announce lay-offs routinely. It's also the squashing of lofty expectations from the 1980s and 1990s, when banks and Wall Street firms opened their doors (with some outside thrusts, of course) to minorities and women and welcomed them to entry-level analyst and associate programs. They hustled to find competent, diverse talent, while at the same time, the talent sought them out.

The expectations then were that after 10-15 years of doing deals, managing portfolios, teams and large client relationships, trading large sums (in the tens of millions), doing research, making sales calls, overseeing complex financial models and advising on investments, the vast wave of minorities would now be running operations, sectors, business segments, subsidiaries in Europe or Asia, or much of the firm itself.  They would be the ones with significant roles in deciding how to restructure a large banking unit, deciding whether to acquire other funds or banks, or deciding where to invest billions of dollars of capital over the next few years.

Granted, there are some minority and women bankers in such roles. And some have risen to the top echelon--either leading the institution (American Express or Merrill Lynch, e.g.) or leading an entire sector (investment banking at Citi or Credit Suisse, e.g.). (Women have previously held the CFO slots at Citi, Morgan Stanley, Lehman, and JPMorgan Chase and chief risk roles at Lehman and BoA.) But expectations had been much higher long ago, because many thought the hardest part about Wall Street was simply getting through the door.

In ensuing years and even today, getting into a lucrative Wall Street spot is still complex, agonizing and difficult. Yet retention and promotion to the top rungs remain even more complex, agonizing and difficult.

Diversity initiatives, retention efforts, networking, and mentoring programs sometimes work. They pave the way for opportunity, provide support and encouragement, and help instill confidence in those who sometimes shrug and want to give up.  Rogers now suggests that all these efforts, and more, need to be capped off with strong demands.

Many institutions nowadays are struggling with reorganizations and uncertainty about reform, but with improved market conditions, they don't have the excuse of having to fight for survival while the financial system is about to collapse.  To their credit, most major financial institutions devote enormous amounts of time, funds and priorities to diversity. And they support internal "affinity" programs to provide career support for women and professionals of color. On the other hand, private-equity firms, financial sponsors, hedge funds  and venture-capital firms, often indifferent about such initiatives, operate as if it were the 1970s.


The pipeline continues to dwindle at mid-levels, as senior associates or junior vice presidents, including women and minorities, become discouraged about senior opportunities or pathways to managing director or become more demoralized, disenchanted, marginalized, or "plain ol' tired" of figuring out how to get to that top echelon. Many depart before they reach their fifth anniversary in the firm.

Thus, throughout the year, when institutions explore the candidates eligible for promotion to the top ranks, many women and minorities have already opted out or the few who remain are not well known to many or don't want to expend the enormous emotional energy to fight the fight.

Rogers suggests institutions and funds--big and small and in all facets of the industry--need to go beyond the placid endorsement of programs. They need a swift kick sometimes in the rear to be reminded that all can do better. All must do better.

Tracy Williams


See also:

CFN: Affinity Groups at Major Institutions, 2011
CFN: Venture Capital and Diversity, 2011
CFN:  Diversity Update, 2011
CFN:  Diversity:  Staying on the Front Seat, 2009

Why Was Citi's CEO Asked to Resign?

Citigroup caught everybody off guard this week, when its board announced it had asked for the sudden resignation of CEO Vikram Pandit. Or did it catch anybody off guard? Was this a gesture  investors pushed for?

Was it the right move for the big global financial institution that seemed to have leaped a hurdle to move beyond the darkest days of the financial crisis--back when there were moments when many thought its survival was in jeopardy?

Over the past few years, Pandit and team took appropriate, bold steps to make the behemoth profitable again. They sold assets en masse. They shuffled bad, non-performing, defaulted, bankrupt, and/or foreclosed assets into a special holding company and, little by little, sold off these positions, properties, securities and full operations.  By doing so, it rid itself of spoiled segments and began to polish ongoing core operations.  They downsized in every way possible--in just about every unit, operation, division, and geography. They finally sold its stake in the brokerage joint venture with Morgan Stanley (although at a large loss).

Earnings, too, had improved. In the days before Pandit's exit, Citigroup announced third-quarter income of over $460 million (somewhat misleading because of a handful of accounting adjustments banks are permitted or forced to do) and has boosted its equity capital base to over $185 billion. Returns on its capital base throughout 2012 have hovered between 5-8 percent-not stellar, but much better than the debilitating losses of years ago.

With regulators showing their hands in all aspects of its business and that capital structure, Citi has cooperated, even when it desperately wanted to resume paying a dividend to shareholders. Growing  leaner, it felt comfortable settling in as the third or fourth largest bank in the U.S., below the first-place perch it had held for many years.

Pandit and team had unraveled the mammoth financial-services empire Sandy Weill and his own team constructed throughout the 1990s and early 2000s. Yet the board, under chairman Michael O'Neill, behind the scenes had been huddling to plan a Pandit departure. It appears Pandit had little clue.

Why then would a CEO who followed the marching orders of both government regulators and a corporate board be told his time is up?

Impatience with the stock price is always a reason. Over Pandit's five-year stint, shares of Citi have fallen 80 percent and more, even though share price is up 10-12 percent in 2012.  The market may have appreciated the bank's revival, but perceived that the clean-up, the reengineering, and the resumption of basic banking aren't complete. The market perceived that other thorns or problems might still remain hidden in operations and haven't been resolved, sold off or at least shoved into the Citi Holdings, the special entity that corrals all the "bad assets" and prepares them for sale.

Investors and the board applaud Citi for separating out the bad assets. But the bad assets still reside with Citi and must be maintained, grappled with and funded.  The board may have been pushing for Pandit hard to get rid of them with more urgency and haste--if only to present a new, cleaner, "de-risked," and unrestrained Citi. The bad assets of Citi Holdings remain as a scar on its overall balance sheet and a stinging reminder of the crisis.

Shareholders also seem to covet their dividends.  Banks traditionally have rewarded their owners with a regular, comfortable stream of dividends. Pandit this past year felt financial improvements warranted Citi resuming paying a dividend; however, Citi sparred with regulators, who vetoed the move. Dividend-loving shareholders appear to have blamed Pandit for not making the improvements quickly enough to result in dividends or share repurchases to help give a jolt to the stock price.

Investors and the board, too, are likely peeking at the performance of peers, the other big banks (Goldman Sachs, Wachovia, and JPMorgan Chase, e.g.) that seem to have rebounded far more swiftly. Citi has escaped the starting blocks, but runs several strides behind the others.


Years ago, Pandit arrived at Citi after his stint at Morgan Stanley and after selling his hedge fund to Citi. He rose to become its CEO when previous CEO Charles Prince was pushed out when the public learned about Citi's crashing values of mortgage securities and mortgage-related structures.  Pandit had been a successful fund manager. Re-juggling portfolios of assets, restructuring balance sheets and assessing the values of trading positions summarize Pandit's experiences and skills.

Citi is now at a pivotal point. Shareholders dream of 10-percent returns on capital and new respect in the banking community. And the board appears to have assessed that Pandit lacked expertise and deep experience in the trenches off basic banking:  operations, branches, systems and technology, corporate lending, deposit taking, cash management, and custody. It needed a new leader that knew as much about the profitability of retail branches and the costs of doing money transfers as about valuing derivatives and mortgage securities.

So it tapped Michael Corbat, a long-time Citi banker with broad experiences in sales and trading, wealth management and international operations. In fact, board chairman O'Neill phrased it as something like a different horse for a different course. The board is pronouncing the restructuring phase as over, and it is time for Citi to become what it wants to be--large, omnipresent, global, familiar to all, yet simpler, basic, stable with boring, steady profits, 10-percent returns (at least) and, yes, quarterly dividend payments to owners.

Tracy Williams

See also

CFN:  Richard Parsons and Citi, 2012
CFN:  Morgan Stanley Progress Report, 2012
CFN:  Moody's Downgrades Big Banks, 2012

JPMorgan's Dimon: A Regulatory Rant

Finance professionals strive to keep up to date with markets, trends and rules. They have a check-list of reading material, journals and documents they refer to from time to time. They scan the Wall Street Journal, Financial Times or BusinessWeek whenever they can. They peek at investment magazines and websites when they think they must.  They peruse SEC documents, accounting rulings, equity research, and analyses from ratings agencies.

Each spring, they find time to read Warren Buffet's annual letter to shareholders--often a primer in investment basics, occasionally a skillful interpretation of finance trends or opportunities.

Or if finance professionals are wedded to trends and fashions in financial services, they tune to JPMorgan Chase's Jamie Dimon and his state-of-the-industry message in the annual shareholders letter.  Since he took the helm as CEO in the mid-2000s, Dimon has used this forum to present more than an analysis of revenues and profits.  Dimon takes the podium and delivers an op-ed piece that roars for dozens of pages.

At the pulpit, aware his audience ranges from investors and hedge-fund managers to regulators, analysts, students and perhaps a politician or two, he selects the important financial issues of the season. He rattles and shakes those issues and explains them in easy-to-understand patterns and data points.  After a neat, digestible presentation of the facts (and his interpretation of them), he delivers knock-out punches:  his views of what happened or is happening, his opinions of what everybody needs to do going forward (including himself, employees, communities, investors and governments), and his promise what his institution will do in the years to come (and of course why all that will help the stock price of JPMC.)

In years past, he was brave to tackle and offer a CEO's candid view of the brewing and bubbling over of mortgage markets, the darkest days of the financial crisis, and the public's perception of bankers being over-compensated.  This year, his letter addresses what is plaguing most large financial institutions these days--new financial regulation banks must comply with over the next decade. The 2012 letter, in part, is a treatise on bank regulation. There is much about this onslaught of regulation that bothers him.

JPMorgan, Dimon writes in his letter, has 14,000 new rules to review, understand and adhere to.  They include U.S.-based Dodd-Frank regulation, the international requirements of Basel II and III, consumer-related regulation, and the Volcker rule that prohibits proprietary trading and will change the pulse, pace and perhaps earnings trends of large banks.  They also include, Dimon explains, requirements of big banks to prepare "living wills" and complex capital-adequacy stress tests. Dimon doesn't disagree with the spirit of regulation. But he fumes at the extraordinary burden of complying with arcane, nebulous rules being thrust on his bank's plate right now. There must certainly be a simpler way, he asserts.

He disagrees with the inefficiencies of dozens of regulators around the world imposing overlapping rules, often without regard to consequences. He's angry that his institution will need to prepare liquidity reports--not just one liquidity report for all regulators, but five liquidity reports for five regulators.

Dimon claims new bank regulation at JPMorgan Chase will require significant amounts of time from 3,000 designated employees and will cost about $3 billion to implement, gather data, perform calculations, monitor exposures and assets, set up new systems, prepare and submit reports. To him, that would be thousands of hours of employee-power not devoted to the business of generating banking revenues. 

As always, after his well-reasoned, often well-articulated griping session, he offers solutions, although this time he knows his solutions and recommendations come too late. Or they will land on ears of government officials not likely to be sensitive to what will appear to be big banks whining about being required to clean up the messes from the crisis.  "The frustration with and hostility toward our industry continues," he writes. "Regulation has become politicized," he says later.

He would settle for, in a dream world, for the opportunity to prepare one simple report for as few regulators as possible--and perhaps a couple thousand fewer employees dedicated to monitoring rules and preparing reports. 

New regulation is intended to minimize the recurrence of a financial crisis, eliminate possibilities of a collapse of the financial system, and reduce the probability that the downfall of one big bank will be a detriment to all institutions globally.  So all bank leaders deal with the fact that regulation--for good or bad--may reduce profit opportunities and lower returns on capital.  Dimon, in his letter, accepts this premise and shows how his institution will overcome hurdles to achieve stable, consistent returns. In fact, he spends a page or two explaining how the investment bank, no longer blessed with the ability to bolster returns from the fortunes of prop-trading, will remain relevant, profitable and at the top of league tables. "Market-making"-related trading will still generate substantial revenues.

In 2012, Dimon vented. He knew he had the stage, a wide audience of stakeholders who understand his business, and also had several uninterrupted pages in the front of the annual report.  He knew his voice wouldn't be misinterpreted in CNBC soundbites or ignored by parts of the population uninterested in the views of big-bank CEOs.

For those passionate about a bank's legal, compliance and regulatory requirements, there is a reason to cheer the decade to come. Dimon's letter suggests there will be long-term employment security for those immersed in regulatory reporting and the black boxes that used to look for prop-trading opportunities, but now must be used to prepare five liquidity reports for five regulators.

Tracy Williams

See also

CFN:  Dimon's State of the Industry, 2011

Role Models and a New Network

NYU-Stern graduate Daria Burke

Who are the women of color, the women from under-represented groups who occupy "C-suite" positions at companies involved in global business? A roster of such names usually includes Ursula Burns at Xerox, Andreae Jung (until earlier this month) at Avon, and Indra Nooyi at PepsiCo, CEOs of companies with billions in revenues and even greater numbers in market value.

Burns, Jung, Nooyi and others preside over companies, business sectors, geographic units, corporate brands, major subsidiaries and functions in finance and treasury. They would also be women from who hustled, regrouped, paused to raise families, scratched, climbed and willed their way into top spots, board rooms and significant leadership positions.  Their  few numbers, while growing, suggest there is still a ways to go. Those in CEO roles, such as Burns, Nooyi and Jung, are known and are seen commanding the podium at shareholder meetings or outlining strategic plans in a broadcast on CNBC.

Those below the CEO rung may not be as widely known outside of their industries and are not prominently profiled  in the business media. As such, they aren't presented as role models as widely as they could be--especially as role models for younger women contemplating a similar corporate-ladder climb or a long-term career in business after the MBA.

That's where Daria Burke, a Consortium alum and MBA graduate from NYU-Stern, stepped in.  She is doing her part by establishing a network of black women with MBA degrees, with corporate promise and with the resolve to succeed in business. Earlier this year, she and others established a new group, called Black MBA Women. The group has its own website and Linkedin group.
 
Burke wanted the group to go beyond sharing experiences and expertise about business opportunities in a network forum. She also wanted network members to learn about, study and follow the career steps of other successful black women in business. For many black women at or near the top rungs, there are lessons that can be shared or advice that can be exploited, based on their experiences.

Hence, the group will present and highlight success stories to share with members. It will spread the news and show what has been accomplished by black women in senior business positions, whether they were CEOs, CFOs, or heads of international marketing and sales, legal and compliance, client relationships, Europe subsidiaries, Asia expansion, risk management, technology and systems, or human resources.

The new group's mission is "to reinforce and create a strong network of African-American women with top MBAs."  The group will try to influence and encourage younger professionals and students and "empower the next generation of young black women by increasing their access to education and business networks."  Hence, identifying role models, presenting the profiles of women in senior roles, and heralding their achievements are primary objectives.

Burke says in the website she was concerned about the "staggering number of African-American girls and post-collegiate women" who don't know about the business successes of black professional women with MBAs from top schools.

She said this week, "I was truly inspired to create this organization by my personal network and by all the young ladies I meet and speak to about going to business school."  She added, "I've gotten a wonderful reception so far and am grateful for the support."

Since graduating from Stern four years ago, Burke has worked in various marketing roles--her specialty.  She is currently Director of Makeup Marketing (North America) at Estee Lauder, steadily rising into roles of greater responsibility and impact.  At Stern she was a student leader in the school's Association for Hispanic and Black Business Students (AHBBS). Today, she is the head of that group's alumni group and decided, along with others, they can do their part to support black women MBA students and alumnae.

The group's website features "Power Profiles" that highlight the business accomplishments and career paths of black women in senior business roles. They include Tracey Travis, the CFO at Polo Ralph Lauren, who has an MBA from Columbia.  Ursula Burns, Xerox's CEO, is featured with a profile that highlights her engineering background. Burns used her undergraduate and graduate degrees in mechanical engineering to launch a 32-year (thus far) career at Xerox.  She was named CEO in 2009.

Edith Cooper, global head of human capital management at Goldman Sachs, also profiled, started out in the firm's energy group and now manages all facets of the firm's recruiting efforts and diversity hiring.  Cooper received her graduate business degree from Northwestern-Kellogg. Rosalind Brewer, CEO at
Sam's Club, is featured, as well.

As Burke hopes to show, dozens, hundreds, if not thousands, of young students may not have been aware of the women in these roles, the bottom-line responsibilities they have at large, major companies, the quiet, effective influence they have in diversity initiatives, and the impact on younger women just from being in the position.

Burke encourages women to join the group as members on the website or via Linkedin.

Tracy Williams