Why Wall Streeters Defecting to Silicon Valley Is Good News
It's just basic risk management: they'll do less damage to the overall economy in an industry where they will soon be replaced by algorithms. JL
Neil Irwin reports in the New York Times:
To the degree finance attracts the best and brightest young
people, it is funneling people away from making goods and services
people use, and toward a back office function not unlike the legal industry or the janitorial service that keeps your
office clean.
It’s easy to understand why Ruth Porat, the chief financial officer of the venerable investment bank Morgan Stanley and one of the most powerful women on Wall Street, would want to head west to become C.F.O. of Google.
She will be in charge of the finances of one of the world’s most valuable and most innovative companies. We don’t know her compensation in the new job yet, but Google can comfortably afford to match or exceed the $10.1 million in total compensation she was most recently paid at Morgan Stanley.
And, of course, the weather is far better in Mountain View, Calif., than in New York.
But the really interesting thing is not this one big defection from Wall Street, nor even a handful of other high-profile moves of people from finance and politics toward the technology world (Anthony Noto moving from Goldman Sachs to the Twitter C.F.O. job, and the former Obama advisers David Plouffe to Uber and Jay Carney to Amazon).
More interesting are the decisions of thousands of less famous names, promising young businesspeople and engineers who will shape the future of the American economy. And to add to the anecdotal evidence that working in Silicon Valley is the hot thing on elite college campuses, there is some solid evidence that Ms. Porat isn’t the only person deciding that technology offers a more compelling opportunity than banking.Consider the records of where Harvard Business School graduates have gone to work. In 2008, 45 percent of M.B.A. recipients there went into financial services, versus 7 percent into technology. Finance still leads the pack, but the gap is narrowing fast; in 2014, it was 33 percent finance versus 17 percent technology.
More Harvard M.B.A.’s Are Going Into Tech
Percentage of Harvard Business School graduates working in field
%
40
30
20
10
0
Financial services
Technology
2006
2007
2008
2009
2010
2011
2012
2013
2014
Percentage of Harvard Business School graduates working in field
%
40
30
20
10
0
Financial Services
Technology
2006
2007
2008
2009
2010
2011
2012
2013
2014
Percentage of Harvard Business School graduates working in field
%
40
30
20
10
0
Financial services
Technology
2006
2008
2010
2012
2014
There’s no doubt that a lot of this is following the Willie Sutton theory of career management — go where the money is. The multibillion dollar valuations for young companies with minimal revenue would get any ambitious person’s attention.
But the flip side of the incredible economic opportunities in Silicon Valley is the lack of it in the more traditional get-rich career paths of Wall Street.
Since the 2008 financial crisis, major global financial institutions of all stripes have been under intense pressure to pare down. Tighter capital rules mean less reliance on borrowed money, which makes stock grants less lucrative. The Volcker Rule and other restrictions on what banks can do mean there are fewer jobs for would-be masters of the universe who want to make big bets — and earn big bonuses — with their employer’s money. And pension funds are becoming more wary of hedge funds that feature high fees, and high pay, with uneven returns.
It’s not that a smart, ambitious person can’t still make a boatload of money in finance, particularly in a still surging private equity industry. It’s that on the margins everything about the regulatory and economic environment is making finance look less compelling than tech industries.
There’s a strong argument that this is a good thing.
Why does finance exist? Apart from consumer banking and managing retirement accounts and a few other areas of finance that exist to serve ordinary consumers, it exists to channel capital effectively from savers to investment. In other words, most of modern finance doesn’t exist as an end in itself, but to make the rest of the economy more efficient.
In that sense, to the degree the finance sector attracts the best and brightest young people, it is funneling people away from making goods and services people use, and toward serving what is essentially a back office function for the entire economy. A very important back office function, to be sure, and one that requires very smart people to do well. But a back office function nonetheless, not unlike the legal industry or human resources department or even the janitorial service that keeps your office clean.
If you think of finance that way, it’s easier to see why the economists Stephen G. Cecchetti of Brandeis University and Enisse Kharroubi of the Bank for International Settlements have found clear evidence that an unusually large financial sector actually reduces the growth rate of an economy, rather than enhances it.
Ms. Porat and the Harvard Business School grads choosing Silicon Valley over Wall Street may be responding to the direct incentives in front of them rather than responding to that logic. But the fact that those types of moves are happening is a promising sign that in the post-crisis world those incentives will serve the overall economy better than the old way
As a Partner and Co-Founder of Predictiv and PredictivAsia, Jon specializes in management performance and organizational effectiveness for both domestic and international clients. He is an editor and author whose works include Invisible Advantage: How Intangilbles are Driving Business Performance. Learn more...
0 comments:
Post a Comment