TIME TO BREAK UP THE BANKING WORLD'S ALL BOYS CLUB? Investment bankers are often young men with too much testosterone. To add a bit of rationality to the global financial system, maybe it’s time banking giants like Goldman Sachs bring on more women and older men.
A week after his very public resignation from Goldman Sachs, dissident banker Greg Smith is still making waves. His accusations against the investment giant, which he chided for engaging in unethical behavior with respect to its clients, were for many the straw that broke the camel’s back. Investment bankers have lost the “Master of the Universe” image they so long enjoyed. Now they’re seen more and more as “losers,” which is something that will likely impact future generations of bankers.
Since the 1980s, there’s been a glamour factor associated with investment bankers. Part of that has to do with the piles of money being earned by the bankers themselves, whose salaries match those of rock stars and top soccer players. Movies like Oliver Stone’s Wall Street (1987) and books like Michael Lewis’s Liar’s Poker: Rising Through the Wreckage on Wall Street (1989) cemented the macho image. Top performers from the most elite business schools were rushing to get Wall Street jobs, unfazed by the inhumanly long hours and the brutal dog-eat-dog competition.
That picture appears to be changing. In its analysis of the latest Goldman Sachs affair, the New York Times notes that graduates who once felt drawn to the top banks – “like moths to light” – are now looking at other sectors. According to the paper, financial insiders say that revelations about the lives of would-be top dogs in the finance sector are turning more and more people off, and keeping them from applying to the firms with the hardest selection criteria.
Mathematics professor Chris Wiggins of Columbia University is quoted as saying: “The claim of investment banking that it serves a social purpose by ‘lubricating capitalism’ has been eroded. It’s simply very difficult for young people to believe that they’re serving any social purpose now.”
A call for new hiring practices
At the same time, events have shown that investment banking is driven less by the rationality of efficient markets than by the high testosterone levels of young bankers. Joan Coates, a former Deutsche Bank and Goldman Sachs trader, has demonstrated this empirically. And that represents a danger to the whole system. A Financial Times writer noted that too much testosterone can lead to individual success, but “in a collective, it leads to excessive aggression, dangerous over-estimation of self, and herd behavior.”
Coates’s advice to the banks is to re-think their hiring policies. They should hire more women and older men, he says. A different mix in the trading room would make the vibe less hectic and cut down on the drama – sheer biology would decrease the testosterone and hence risk levels. At the same time, new hiring policies would solve the problem of how to attract new talent to the field.