Building Character on Wall Street

Dec. 1, 2014

By Roy C. Smith

Michael Lewis, in a recent Bloomberg piece, noted that the world’s best and brightest young people have been filing unthinkingly into the Wall Street gladiatorial arena for at least three decades, where they face great pressures that demean their characters and ethical compasses, just to make the money. 

At the elite schools a great many students still want to work in “Wall Street” (i.e., in the global capital markets business) despite Mr. Lewis, the reputational damage the industry has sustained and the many uncertainties about the its future. As soon as the school year began again, students started maneuvering to secure jobs, either full-time or as summer interns. It's a stressful process in which the applicants well outnumber the vacancies.

A number of today’s prospective Wall Street recruits are my students. They know of the difficulties the industry has had to face since 2008, the new regulations, the litigation, the pressures on profits, and the layoffs, pay cuts, long hours and the slowdown in opportunities for promotion, but they still come.

Yes, they are young and relatively inexperienced, but they are not naïve or uninformed about the conditions in the business. Most can make about the same amount of money in other jobs, and are sensible enough to know that one should not take a job one is not enthusiastic about just for the money.

The real, underreported reasons they continue to come are three:

First, the work is dynamic, challenging and exciting.  Modern finance now touches just about everything that happens in the world. It is truly global in scope, very fast paced, and innovative. New recruits work in highly professional specialized areas, often simultaneously on several different teams that focus on a variety of different problems and opportunities for which good solutions are much valued. To get all the inputs they need, teamwork and collegiality is key, and teammates become close friends.

Second, the organizations they join are largely non-hierarchical, where people are accountable for what they do and given all the responsibility they are thought to be able to handle. To be put in charge of preparing and delivering a pitch to a new client can be very challenging for a youngster with only a year or two experience. Getting it right invites further opportunities. Few other professions provide such a steep curve of potential upward mobility, or a better way to test oneself against peers. 

Third, the training in financial market operations is exceptional and wide-ranging. After only a few years, employees at firms with a robust “deal flow” learn a great deal, become certifiably professional and begin to attract offers from other firms. While they are doing all this they also have the opportunity to see what they think of the way the industry works, the toll it takes on personal lives and the degree to which handling conflicts of interest or other ethical issues may be troublesome.

They also have the chance to see how management of the firms in the industry strives to pull together performance, compliance and accountability to shareholders. The managerial role in these firms is increasingly complex, demanding and important, and creates a different, broader set of career opportunities.

Many new recruits today know very well that the power and profits of the industry are shifting from “systemically important” firms to much smaller ones -- boutiques or specialized hedge or private equity firms.  For many years, the number of billionaires (to use one popular metric) in these smaller entities has vastly exceeded those from larger firms.

But what they also know is that the training they get at Goldman Sachs or Morgan Stanley or any of the other top firms is the ticket to new opportunities -- from within their own firms or from competitors or others.

What Michael Lewis misses is that the high-performance Wall Street culture, as controversial as it may be, is essentially one of providing for long-term success in a very competitive, risky and ever-changing marketplace.  This is not easy to do. Misjudgments and abuses occur, but these rarely, if ever, benefit firms as recent legal settlements demonstrate. A well-managed firm competing in capital makers must meet many increasingly transparent standards of professional, regulatory and reputational conduct in order to succeed over the long term. For this the firms seek talented, capable young employees with good character that they hope to fortify and improve on the job.

A couple of generations ago, most young men coming of age were required to spend a few years in the military. For most, then and now, this experience in small unit leadership, handling responsibility and accountability, and in just having to show up on time and get the job done no matter what, was invaluable. Few young people have that experience today.

The real world training the capital markets industry offers is a good substitute for the military. The training it offers in achieving performance objectives, in the context of a myriad of tough behavioral standards, is as good as it gets. A few years work in the industry can help to prepare young people for successful careers anywhere - in industry, entrepreneurship, government, or elsewhere.