|Why aren't financial institutions on this list in greater numbers?|
Lists can be disconcerting and controversial, especially the criteria on which most lists are made. Criteria are often too subjective and permit list-makers to exploit statistics, data, numbers and surveys in the way they might want lists to appear. Fortune's 500 list, it happens, might be one of the least-subjective lists around. They are based on public company's disclosed, audited sales totals.
(BusinessWeek's and USNews' lists of top business schools are subjective and can change significantly by tweaking one variable among many in a list of criteria. Such lists can be helpful, but should viewed with caution. Should business-publication editors get to decide what business school is "better" than another one?)
Fortune's latest list is its list for the best companies to work for. Remember, this is not a "500" list. Companies appear based on a set of subjective criteria, surveys, interviews, and evidence of perks, special benefits, and hear-say.
The net worth, market values or profitability of companies is not a primary factor, although some of the "best companies" on this list attract top talent because they have proven results and strong financial performance. Vice versa, strong companies are able to invest in perks and benefits to attract top talent and keep the talent for years because of such benefits.
The usual names appear at the top of this year's list: Google/Alphabet, Salesforce, KPMG, EY, Pricewaterhouse, IKEA, Whole Foods, and Deloitte. Even GoDaddy, Mars (Candy), and the Cheesecake Factory made the list. (Many, in fact, are Consortium sponsors.)
But what about financial institutions: banks, broker/dealers, asset managers, insurance companies, hedge funds, mutual-funds companies, securities exchanges, etc.? Do they appear on the list? If not, why? And how has this trend changed in recent years?
First, let's check Fortune's criteria, at least the way the publication organized and presented the criteria in 2016. Remember, this isn't a list that measures size, bottom-line metrics or a company's ability to generate tens of billions in sales, although many on the list are big and generate returns that keep investors smug and satisfied.
Happy, talented employees contribute to strong performance, no doubt. And employees are generally happy when companies eagerly provide perks, nurture sane work environments, and maintain common sense about employees' own lifestyles and family constraints. Fortune's criteria revolve around just that: benefits, rewards, and attractions that help retain employees for the long term. They include childcare, sabbatical privileges, flexible workdays, healthcare, and exercise gyms.
What financial institutions appeared on the list? Some names are familiar. American Express, for example, no matter recent performance issues it has had to deal with, is still a favorite place for employees--thanks, still, to the leadership of its CEO Kenneth Chenault.
A few are scattered on the list--some insurance companies (Nationwide, e.g.) and a handful of banks and regional broker/dealers (CapitalOne, Edward Jones, American Express, Robert Baird, e.g.). Goldman Sachs doesn't make the top 50. Major banks or institutions such as Citi, Blackstone, JPMorgan Chase, and Morgan Stanley aren't listed at all.
Why don't financial institutions appear on these lists in large numbers?
There might be some an assortment of reasons. Large size and unwieldy organization structures might be factors. The volatile, unpredictable nature of financial markets could be a contributing factor, too. That many financial institutions are the results of a series of clunky mergers shouldn't be minimized. But let's try to tackle a few common reasons:
1) Regulatory requirements and related priorities.
Financial institutions are deeply immersed in a complex web of financial regulation. Compliance is difficult, laborious, expensive, and critical. As much as they are attentive to financial performance (shareholder returns, revenue growth and cost-cutting), they are wading through thousands of pages of new regulation and playing catch-up even when they catch up. (Bank regulation continues to evolve and expand each year since the crisis.)
Meeting capital, shedding trading desks, reducing leverage, and passing stress tests with top grades become priorities. Gifting employees with free perks and caring about work-life balance issues get thrust into the back seat.
2) Still haunted by the financial crisis.
The financial crisis has receded into financial history, but financial institutions today take business steps and adopt strategy with one foot pointed ahead and the other anchored down by debilitating risks that caused a near collapse in the financial system.
Banks, hedge funds and broker/dealers are not necessarily risk-adverse at all hours of the clock. But they operate in anxiety, pushing buttons to ensure they don't slip back into a setting where all markets are slamming their balance sheets, capital bases and earnings reports. Nor do they want to make an errant, rash decision that might result in hundreds of millions in litigation years from now.
3) Less able to attract the best talent.
In recent years with a surge in interest in technology, entrepreneurship, and new business models, financial institutions may no longer be the most desirable destination for undergraduates and for those with professional degrees (JD, MBA, e.g.).
Banks know that and have worked hard to redefine the experiences and growth paths in their institutions. Some are "creating" interesting roles to attract not only those who adore capital markets and investment management, but those interested in computer science, engineering, and international relations.
It's a tough sell. Some interested in financial services may turn first to opportunities in "fin-tech," or financial-technology start-ups and related new ventures.
4) Fewer benefits, perks and special attractions.
Financial institutions are bogged down with capital requirements that increase every year (as rules are amended to ensure they can stand down the next crisis). They are steadfastly focused on containing or cutting costs to reach profitability objectives. The best way to achieve an ROE that pleases shareholders, when revenue growth is limited, is to wage aggressive cost-cutting campaigns, the kinds of campaigns that cut into the core of a business operation. If abolishing tuition reimbursements for employees helps cut costs, then so it goes.
Large banks have cut their costs or managed them well in recent years. The expense numbers prove it, and the profit margins in recent years show it. (Just this month, Credit Suisse announced bold efforts to cut cuts even more.) But what gives and what goes away? Employee benefits, employee perks, long-term or contractual compensation, and many of the factors that might help put banks on best-work-place lists.
5) An industry still in flux.
The industry of financial services is evolving quickly. Regulators are concerned about institutions being "too big to fail" and have imposed restrictions on activities like proprietary trading and on balance-sheet leverage. Smaller start-up companies, not yet constrained by regulation, have begun to tread on bank territory to provide payments and lending services. Securities exchanges have sprouted all over the place electronically.
What financial institutions from banks and broker/dealers to exchanges and futures dealers could do years ago might be prohibited or limited today. What they could do years ago might make little economic sense today. How they do things (processing securities and making payments, e.g.) is changing rapidly.
Uncertainty in some industries can present opportunities. Uncertainty in financial services presents opportunities, as well, but can also discourage talent, if the talent is unsure what the role of large financial institutions in 10 years will be.
6) Fluctuating, unpredictable patterns in compensation.
Compared to many industries, financial services continues to pay well, especially in areas like investment banking, investment management, research, private equity, and hedge funds (when they are doing well). The old guard might complain that the era of star bankers and stratospheric, guaranteed compensation is over, but head-shaking compensation packages still exist.
Sometimes, however, compensation--no matter how lucrative--varies significantly from year to year and is too often be based on subjective criteria. The best employee is not always assured of being paid fairly or commensurately.
7) Working under a constant threat of lay-offs, reductions, and firings.
Within the industry, there have been precedent and patterns since the financial crisis. Financial professionals no longer join the industry confident they can spend 20 years or more doing well on the job and be handsomely rewarded and aptly promoted. The days of such comfort are gone.
Companies, banks and firms in financial services nowadays make critical decisions on businesses, geographies, products, balance sheets, and profitability. Unfortunately people are affected. That has led to a work environment, unlike decades before, where employees say they work under a cloud that "this day could be the last."
Staff reductions and dismissals exist in all industries. Yet the aura of "the last day" and ongoing efforts by employees to look for omens (little signs that lay-off-related announcements are looming) persist often in financial services, because of what has occurred regularly in the past decade.
8) Lack of attention to professional and management development.
The industry does an outstanding job in providing experience and expertise to junior staff about products, markets, clients, services, and systems.
The industry focuses first on "closing the deal," "booking the best trade" or "providing the most lucrative advice" and ensuring that everybody involved is equipped with market information, data, or financial models.
The industry, however, falls short in helping develop new professionals to become shrewd, compassionate managers of businesses, sectors, and people. And much of that is due to fierce, ironclad attention toward the market place and to regulatory compliance, while professional development is overlooked as a priority.
9) The hours.
Stories about "the hours" working in a financial institution are legendary: the so-called 100-hour work weeks, the sudden demands from higher ups to cancel weekend plans, the Sunday-afternoon conference calls, beach vacations spent in front of a laptop, etc.
Long hours exist in other industries, too. Management consultants, computer programmers, and entrepreneurs work similar hours and have the same level of demands. Those who work for banks, hedge funds, and private-equity boutiques don't complain as much about the long hours as much as they screech about the lack of control over the hours they work. Few who choose the industry mind the deals, transactions, trading, and research they do. Many enjoy the thrill of the deal, trade, client closing or investment find. Yet many will say the uncertainties and sometimes the whims of supervisors or clients are too hard to tolerate.
Let's not lampoon the industry without highlighting its attractions and explaining why, despite all, thousands of graduates swarm toward Wall Street or its regional equivalents every year.
Why would or should a financial institution appear on the list?
1) Technical innovation and changes in the industry.
For good or bad and despite demands and clamors from regulatory authorities, the industry is in the midst of constant change. Technology helps drive that. Entrepreneurs and a new-venture spirit contribute. The impact of technology over the past 15 years has been extraordinary. The way securities are traded and cleared is swift, efficient and less cumbersome (although some say more improvements are necessary). They way payments (institutional and retail) are made are similarly swift and smooth. Loans (including small-business and student-related credit) have hopped this electronic, swift-approval bandwagon.
Such constant innovation, much of which has helped to spur growth and cost-efficiencies and much of which has sparked the formation of new companies or partnerships with big institutions, can attract talent into the industry. The computer expert who might have fled to Silicon Valley to join an interesting new venture might choose to accept Goldman Sachs' offer to build a trading model that might reduce the market risks of billions of dollars of derivatives.
2) Capital resources: breadth and size
Critics from all over argue loudly financial institutions (banks and insurance companies) should not get too big. With their lists of who's too big and who's not, regulators worry, as well. Substantial size leads to significant systemic risks and "contagion" within the system. We've heard these argument lines regularly since the crisis, and many offer valid points, while regulators obsess in what else they can do.
Capital resources and size, however, typically mean big institutions can take on big, bold projects and make big investments that can have important impact. Big institutions can also preside over big transactions and deals (loans, underwritings, trades, etc.) or operate across the globe if they choose to do so.
The ability to capitalize on size, scale and resources can be attractions to those who like to work on headline transactions, big deals, or financings that have widespread impact. Size and resources in the industry make it easier to get things done in capital markets or with clients with operations around the world. The MBA finance graduate, newly arrived from Dartmouth-Tuck, can work on a $5 billion equity offering on the first day on the job or help arrange the merger of two large pharmaceutical companies the next week.
3) International presence.
Large financial institutions have a global footprint. They operate just about in every major locale, where there exist vibrant capital markets or bustling business activity, where there exists a groomed financial system. This often means banks, insurance companies, and asset managers will station themselves in New York, Chicago, San Francisco, London, Paris, Brazil, Tokyo, and Singapore at the blink of an eye.
Opportunities to work around the world amidst different culture and environments or having an impact on emerging markets are attractions to talented, diverse employees.
4) Compensation benchmarks
Even if it is volatile and unpredictable and even if it comes with fewer other perks and special privileges, compensation within the industry is still more than satisfactory. In certain institutions or financial-sector niches, opportunities to increase rewards (via stock and incentive plans or investments) continue to be favorable industry attributes.
5) And, yes, the thrill of financial and capital markets
In the end, the industry will always be attractive to those who understand the significant, varied contributions of financial companies (as traders, as intermediaries, as market-makers, as advisers, as researchers, as asset managers, and as innovators of new financial instruments).
Financial markets can be a thrill to follow, to dissect, to analyze and explain. Financial instruments offer vast amounts of funds sources that spur investments in new products, industries and regions.
And those who are enamored will be willing to step in to do the analysis, do the trade, do the investment, do the research, nurture the client, help the customer, and close the transaction.
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