The financial services sector has always sharpened its competitive claws by rewarding tough employees who are more likely to be lone wolves than team players. But according to John J. Mack, the head of Credit Suisse First Boston, a firm's best hope for distinguishing itself in the crowded financial field now has to come from its superior management of people.
"Demand to be managed," Mack told MBA students recently in a talk at Harvard Business School.
Speaking to a packed auditorium on October 20, the tall, blunt-speaking CSFB chief executive officer acknowledged that his stance on management is not typical in the financial services sector. Wall Street's culture has always attracted and rewarded aggressive employees who do not know the meaning of work-life balance. Their main motivation: money. Not that Mack has anything against money; he took care to clarify this point with a slight smile. But the competitive difference for firms in the long term is "clearly management," he explained.
"In a commodity business, the only way to really distinguish yourself is to have the best managed business you can possibly have," he told the students.
Mack's comments came at the invitation of the HBS student-run Finance Club. Autumn is typically a big run-up to recruitment at HBS, so in his exchange with the audience he emphasized career advice and tried to outline the shape of Wall Street as he expected it to evolve. He also fielded questions about the Frank Quattrone debacle and shared some lessons from his own high-profile career. Mack was formerly president of Morgan Stanley, a position he attained in 1993 after working his way up through the company. Mack joined CFSB as CEO in July 2001.
Wall Street weak
Too often in the financial services sector, the only job incentive that people see is financial remuneration, he said. People would do better to look at their own careers in financial services as an opportunity to participate in something creative, exciting, and challenging. "And yes, by the way, you can make a lot of money. But that shouldn't be your only focus going into this sort of work," he said. In fact, he continued, such a view could ultimately be damaging to the firm overall.
"I think Wall Street has been really pretty weak in managing people. We have a tendency to say, 'If you come work for us, we'll put you in the area you want to work in and we'll pay you a lot of money.' It's a money culture.
"But too often in our business, money is used as a substitute for managing. So the idea that if I can pay you a lot of money, [then] I don't have to engage with you, I don't have to be direct with you, I don't have to be honest with you, I don't have to coach you, [has] made a whole problem on Wall Street."
| I think Wall Street has been really pretty weak in managing people... It's a money culture. |
| — John Mack |
Most people do want to work with a firm they believe is the best or has a shot at being the best, he said. They also want honest feedback. They want to feel empowered: If they have an idea, their firm should give them "the backbone," capital, and support to make their idea a reality. By that token, the managers who treat employees with dignity and respect need to be rewarded for their behavior, he said. That way, people skills become inculcated into the general culture of the firm.
A volatile business
The financial services sector itself is in a huge state of flux. "Pick any area of our businesses and you can see change," he said. Some of the challenges confronting the industry include:
- Markets. "They're dynamic, they're electronic. If you talk about the equity markets today, I think the real dilemma on Wall Street is how you make money in the equity business. Margins are getting compressed."
- Acceleration of consolidation on Wall Street. Due to the importance of capital, the need for a large distribution network goes up dramatically, he said.
- More regulatory oversight. The new mantra in financial services, he said, is going to be "Before we do anything, we'll have to check with legal."
Most importantly, the real challenge going forward will be managing people, Mack repeated.
Tough managers, stay away
Mack acknowledged his own reputation as a hard-driving leader. When he said that those days are mostly over, some audience members tittered. He insisted that his management style is "softer" than it used to be.
But the days when a headstrong manager could count on pure aggression as a career booster really are over, he said. The people who will be successful are the ones who can appreciate their employees' needs for balance between a work and personal life.
When asked about former CSFB star tech banker Frank Quattrone—who may soon face a retrial after the case against him on obstruction-of-justice charges ended in a mistrial several weeks ago—Mack first replied that he "likes and trusts" Quattrone. "I don't think Frank did anything wrong," he added. However, Mack continued, he also believed that the contract Quattrone had received was over the top. The contract "clearly did not build a one-firm culture, and probably incentives were in the wrong place," he said.
| Too often in our business, money is used as a substitute for managing. |
When Mack arrived at CSFB, he said, he saw a company full of silos, a culture based on the pursuit of money. Not everyone had a contract, but most did, he recalled. "It was a me-only organization." Yet he was also struck by the passion and intensity of smart people who wanted the firm to be top-notch and who had been, in his view, under-managed.
To bolster the one-firm idea at CSFB, Mack altered the firm's compensation scheme in favor of an equity ownership structure. Employees are discovering that they like "owning the equity," he said. They want the company to do better because their stock does better.
He tries to lay down the law in other ways, too, he said:
- Hold people accountable; make sure the bad citizens leave if they can't change.
- Empower younger people to rise.
- Encourage managers to take risks.
"That's what we try to do. Change in culture takes a long time. We've still got a ways to go, but I like the way it's going," Mack said.
When a student in the audience asked whether CSFB's well known reputation for entrepreneurship would be undermined by such a people-focused culture, Mack did not accept that entrepreneurialism and teamwork implied a contradiction.
He wants employees to behave entrepreneurially. Part of being entrepreneurial is the ability to solve problems quickly.
"I've had calls from CEOs who say, 'John, your team is one of the most creative teams I've met.'... At the same time, you can be entrepreneurial and still embrace a one-firm culture. You can still embrace and want to have an ownership culture. So I don't see them as opposed to each other."