10 Nov 2007

Exit 'Fred the Shred'- Character traits in Chief Executives

We have never personally met Fred Goodwin but reading an article about him we were reminded that many corporate disasters happened under the leadership of executives that were described as domineering. Whatever the merits of this adjective in Goodwin's case - any analyst worth his salt should scan press articles for similar key words and have a good second look at any business that is run by someone described with these words.

25 Oct 2007

To Quant or not to Quant?

Yesterday's Financial Times carried a polemical piece by Nassim Taleb. In it he derided the use of mathematical models and called the so-called Nobel Prize for Economics an absurdity.
While we ploughed our way through a fair share of mathematics in our undergraduate economic classes and found them pretty remote from reality, we would not go so far as to completely reject the role of mathematics in the financial markets. At that time it was a sign of stellar quant ability if a bond trader or salesman could calculate the yield to maturity on a bond without use of a calculator, but time has moved on.
The recent events in the credit markets, however, have demonstrated that at PhD in Maths cannot be a substitute for good judgement and that good character should still be the basis for a successful career and business.

4 Oct 2007

Bonus Fears: Not as bad as the headlines make believe

Some newspaper headlines predict massive job losses and a substantial drop in bonuses for financial market professionals this year. Apart from creating a bit of publicity for some of our competitors who are quoted by the media we advise clients and candidates to keep a cool head and focus on the big picture.Excessive discussions about the expected level of bonuses are a nuisance in the best of times and for many firms the year is only over on 31 December. So there is still a lot to play for. Emerging Markets are booming (too much?), and fund-raising continues at a frenetic pace in the alternative investment field.

3 Apr 2007

Lessons from a Boat Race - Or how to make teams work better together

Can business leaders really learn from a study in which the Cambridge University boat club has been observed at work during seven-months period? That would be the impression one could get from reading the conclusion by Mark de Rond, a senior Lecturer at the Judge business school in Cambridge, who conducted an 'ethnographic' study of the boat team as it prepared for the annual Oxford-Cambridge boat race on April 7. Dr de Rond concludes that a team in a boat is a social entity and it can be a massive brake on the boat if the team members are not all working together.We think that this is a truism - especially in the lower ranks of management. Earlier in the same column ('Business Life' by Stefan Stern, Financial Times) the author stated that 'at the highest level (of management) you must perform in areas that are beyond your expertise, where the facts are not known'.This, in our view, is the key problem of leadership. The key to top management performance is not just higher efficiency. Clear targets can easily be defined for staff and lower levels of management - as well as the members of a race team. But Business Leaders have to move into the (dark) future and decisions have to be made where the outcomes are never clearly visible.In our opinion good management at the highest level requires a balance between good judgement and experience. The same applies to the selection of top management - be it from internal or external candidates. It will always remain a mix of science and art.

10 Feb 2007

Professionals should do well again in 2007

The larger firms have built their staff levels from a standing start (Goldman had 56 employees in 1978 in London, Morgan Stanley had not even opened an office) to a cast of thousands.This was an extraordinary period of expansion that has come to an end. At best, employment levels will stagnate at this high level and fluctuate slightly around it with the ebb and flow of business levels.Professionals should be relatively safe from the trend towards overseas outsourcing or automation. Individual employees, however, will be under pressure to perform and may be weeded out in favour of younger staff that is potentially cheaper and keen to move up the career ladder.

31 Jan 2007

London vs. New York - A Tale of two Cities

We do not think that the ascendancy of London as a financial centre to rival - and even overtake - New York should surprise anyone. The issue of overregulation in the US may be a factor but sheer demographic realities make it difficult for New York to maintain its position as undisputed leader among financial centres. This position was a legacy of two world wars and now that Europe is not cut in half by the Iron Curtain London is the natural financial centre for a region with a population of 600 million inhabitants. London is also geographically much closer to the Middle East and Africa and even Latin America is not that much farther away from London than from New York. London also offers a much more diverse workforce than New York as it is close to a multitude of different countries whose languages are regularly needed to conduct business effectively around the world.

15 Jan 2007

Arbitrary bonus allocation creates legal minefield

The Financial Services Industry is in the middle of the annual round of deciding the size of the bonus pool for its employees as well as the distribution of the payments between the various departments and staff members. Recent Press comments let us send a word of caution to Senior Management and Human Resource Departments. We are very sympathetic to management's desire to reward those among their staff that they think offer the best potential to make good contributions in the future. So we are not surprised that employers may wish to award the bulk of their bonus pool to the most profitable employees or to younger staff that they wish to motivate.However, today's litigious workplace limits the amount of discretion employers have without running the risk of being dragged into damaging and costly legal disputes.Awarding bonuses on anything less than objective standards creates a legal minefield for the employer as those employees that have received a low bonus may be tempted to have their compensation reviewed by an employment tribunal or even in a court of law.Some firms still have no adequate internal system to allocate profits on an objective basis and they should now urgently review their management controls. They will need them so that they can make sure that bonus payments are backed up by hard numbers that can stand up to scrutiny in a court if staff members feel that their bonus was allocated in an arbitrary fashion.