“Business Models”/ “Corporate Intelligence”

It’s that time of year. The current year is almost done – money has been made or lost. Time to move on. Plans are made for the year ahead. Management in investment banks step forward to make “plans”. They lay down strategy to lead the vast retinue of traders, salespeople and support staff into battle. The leadership’s contribution is strictly “business models”.

Groucho Marx noted with great prescience: “military intelligence is a contradiction in terms”. “Bank management” or “banking strategy” lives up to the proposition.

A casual observer will find it difficult just to work out who actually runs the place. American investment banks have numerous Managing Directors. One banker created the following rankings: MD/ NR (Managing Director/ Not Really); MD/NVI (Managing Director/ Non Very Important); MD/ PLN (Managing Director/ Please Leave Now). There are co-heads and joint-heads. There are more Chairmen and Vice Chairman than any reasonable organisation could require. Asking anyone adds to the confusion. The person asked always insists that he or she is in charge, at least until you ask the next person. An organisation chart, if it exists, will have the complexity of the wiring diagram for a nuclear warhead.

In reality, banks are the last feudal kingdoms. Their rulers are omnipotent, divine shogun warlords. Their key lieutenants are Ronin (wandering mercenary samurai) who roam financial markets ready to ally themselves to any warlord for a share of plunder.

Trading rooms are collections of fiefdoms. Each ruler has absolute authority over his or her subjects. Power lies in the tight knit band of knights that are allied to him or her. They are united only in their hatred of the common enemy, other people with their firm who would dare infringe on their territory. Competitors are minor irritants. The real enemy is within.

Fealty is based on the rewards that the ruler parcels out to subordinates – the share of plunder. Compromising photos of the individual are helpful. One with someone of the same or opposite sex other than their partner are valued. Photos with an animal performing some sexual act are highly sought after. Knowledge of past financial indiscretions or cover ups are useful. Occasional bloodletting is unavoidable. This takes the form of the random brutal execution of a formerly trusted associate for no plausible reason. It has no purpose other than to engender fear in the remaining followers. The major court game is “divide and conquer” with the ruler playing his people off against each other. It all ends in a palace coup d’etat. Then, the cycle just repeats itself.

The shortcomings of the top managers in banks and dealers make them vulnerable to the modern version of snake oil salesmen – management consultants. Major consulting firms play on the barely concealed insecurity of the numerous Chairmen and Vice-Chairmen of banks and dealers. After all, there are so many to choose from. The impenetrable jargon of management speak confuses and dazzles them. They come to rely on a retinue of retained consultants to run the place. Consultants provide a buffer against the feuding warlords. They provide excuses for hard decisions. The consultants also provide a convenient scapegoat when things go awry.

Management of most firms is a succession of fads. Our glorious leaders lurch from one to the next, pissing away enormous sums of money in the process. The fads are a curious mixture of homely common sense packaged as high science and incomprehensible Orwellian newspeak. Here are some of the fads that I along with my long suffering colleagues have endured:

"Diversification"- Let’s do several things that we don’t know anything about badly.

"Sticking-to-the knitting" - Let’s get back to doing what we once did if anybody can remember what it is and how to do it.

"Decentralisation" - Massive duplication, confusion and creation of thousands of petty empires.

"Matrix structures" - Everybody reports to everybody, no one knows whom they work for and there is no accountability.

"Flat organisations" -Managers who can’t manage now manage several hundred direct reports.

"Business process re-organisation" - A process by which you cut everything that is essential leaving only everything that you don’t need.

Befuddling buzzwords permeate all conversation: transformation, best-of-breed, competitive advantage, paradigm, silos, concept, reinvention, template, benchmark, insourcing, outsourcing, off-line, online, CRM, KPI, TQM, B2B; B2C etc. We go from “hugging the leader within” to “hardball” where we “unleash massive and overwhelming force” against competitors, mostly within the firm and sometimes outside. Only two terms actually mean anything. Downsizing is code for mass sackings. Multi-skilling is code for doubling each employee’s workload. It is applied liberally to the back-office.

The quality of bank management is evident in a recent attempt by the Commonwealth Bank of Australia, my old alma mater, to sharpen up its image (see “Dressing Up Down Under” Euromoney (January 2006) at 7). It took the form of a “grooming handbook”. The recommendation included advice on jewelery – a maximum of two rings on each hand and earrings the size of a 10 cent piece. Flesh coloured smooth finish T shirts bras were recommended. Shiny finish stockings were to be avoided – they made legs look larger. It was not exactly clear whether the recommendations were targeted at male or female staff. There was some male specific advice. Men should buy 6 to 10 pairs of “matching” socks. “Specialist foot powders were recommended for those with smelly feet. Older males were advised specifically to trim nose hair as “hair in those areas can increase as you age”. The guidelines had been developed by a specialist consultancy called “Corporate Intelligence”.

© Satyajit Das 2006; All rights reserved.

The above is adapted from Traders Guns and Money: Knowns and Unknowns in the Dazzling World of Derivatives by Satyajit Das (2006, FT - Prentice Hall, London, ISBN 0273 70474 5) available at all good book stores or online at www.pearson-ed.com.

Satyajit Das works in the area of financial derivatives and risk management. He is the author of a number of key reference works on derivatives and risk management. His works include Swaps/ Financial Derivatives Library – Third Edition (2005, John Wiley & Sons) (a 4 volume 4,200 page reference work for practitioners on derivatives) and Credit Derivatives, CDOs and Structured Credit Products –Third Edition (2005, John Wiley & Sons). He is the author of Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006, FT-Prentice Hall), an insider's account of derivatives trading and the financial products business filled with black humour and satire. The book has been described by the Financial Times, London as " fascinating reading … explaining not only the high-minded theory behind the business and its various products but the sometimes sordid reality of the industry". He is also the author (with Jade Novakovic) of In Search of the Pangolin: The Accidental Eco-Tourist (2006, New Holland), an unique travel narrative offering passionate and often poignant insights into the natural world and the culture of eco-travel.