Boardroom In Black

Continuing along the theme of stratification in finance, there has been a lot of hubbub around the audacity of banks paying huge executive bonuses. (see here for a common example of this). These banks were the ones first in line at the public bailout soup kitchen, blowing Uncle Sam for a shiny quarter. Public opinion has formed mostly along the lines of, “These are the jokers that got us into this mess, why should we give them bonuses for their failure?”. While sounding logical, this line of thinking betrays a lack of real understanding as to how business (and in particular, Big Business) gets accomplished.

The real value of a businessman isn’t just his accomplishments, but the alliances and relationships he has carefully courted and built over the years in order to Get Things Done. No man is an island, no man is “self made”, and the ones who claim to be are either fools, liars, or are selling you something. Finance execs, in particular, run all their railroads this way – the accounts they service are rarely new, but rather, are the result of relationships built as the exec climbed the ladder over the years. These accounts aren’t loyal to (say) the Bank of Dumberica – the BoD is simply where the exec currently works at, and one bank is often as good as the other. If the exec moves to another institution, or (even more lucratively) starts his own financial consultancy firm, those huge accounts in his stable will follow him to his next stop. Loyalties in business are almost always personal – it’s not the bank that gets the client rich, it’s the exec pulling the strings at the bank who has done the real work.

AIG and other banks are rightfully concerned that they will not be able to retain finance execs if they cannot pay the six and seven figure bonuses that these people demand. Even in these “rough” financial times, the exec simply will leave, taking his accounts with him. By not spending millions in bonuses, the banks and firms stand to loose many billions of dollars in accounts. This is already happening – I’ve many friends who do IT consulting in the financial world, and all of them are completely swamped with calls from finance folks who are setting up shop on their own. It is this exodus of talent from the larger firms and banks that may ultimately spell their downfall, and if you think the economy is screwed now…

It is unwise to assume that a group of people higher up in the financial food chain then oneself go through life, playing by the same rules as the Common Idiot. This is how the game is played, and those few who have demonstrated their worth in the ring play by these rules. Pay them their bonuses now, or pay them your financial well being later… the choice is up to you. Ensure you’re making a fully informed one. And if you’re just starting out in your career, treat people well, build those alliances, and guard your contact list with your life.