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Friday: The Strategy of No Strategy- Part 1

The Colonial Eating Club at Princeton

I finished Karen Ho’s book, Liquidated- An Ethnography of Wall Street a few days ago and while I can’t do the book justice in a single blog post (it’s going to take at least four), I’m going to try to summarize some of what she is describing as the culture of Wall Street and how it is infiltrating our lives. I’m going to touch on four major themes in her book: “smartness”, “flexibility”, “shareholder value” and “the strategy of no strategy”.

Many of us are confused and angry about why our employers and politicians act the way they do. We can’t figure out what they’re thinking or who they’re trying to please.  Now that I understand the culture of Wall Street, I can see an alignment going on in our worklives and our politics.  In some respects, the players do not even realize this is happening to them.

Ho is an anthropologist by training.  She was recruited by Wall Street when she was a grad student at Princeton.  She took a job as a management analyst at Bankers Trust in the mid 90s.  Much of this book is written as an academic text.  It is well researched and references and citations are thick throughout the text.  The writing style is dry and formal for the most part.  In a couple of sections, she slips in her own surprise (“my jaw dropped”) and I’m not sure if these sections were added after the latest financial downturn.  I wish she hadn’t done this because the contents are jaw-dropping enough as as they are.  There are a couple of things that you need to keep in mind as you’re reading this book.  The first is that many of her informants are Asian, which is a culture to itself.  Ho does not explore the effect that characteristics of the elite Asian student may have on an already demanding working environment.  I’ll try to explain my own experience with such students.  The other thing that she doesn’t explore is the degree to which the internet has sped up and exacerbated the deal making process.  Ho’s experience on Wall Street occured shortly after the World Wide Web was rolled out to the general public and was adopted by everyone with the frenzy of a shiny new toy.  I think if Ho was writing this book today, these two elements would need to be explored and incorporated into the comprehensive description of Wall Street culture that she has created.

Those two things out of the way, let’s unpack four of the themes in Liquidated that explain how Wall Street operates and how it affects all of us.  I can’t do this book justice so if you are interested in learning more, I recommend that you read it.  Even as an academic book, I couldn’t put it down.  I will describe each concept as it originated on Wall Street and then how it has been translated to industry.  The industry I am using is Big Pharma because I think pharma has been one of the industries most adversely affected by Wall Street culture and whose demise is indicative of what will happen to the rest of the country if this culture is not reformed.


The culture of smartness on Wall Street explains all of those clueless letters to the editor we’ve seen from various Wall Street bankers who whine about how the public doesn’t know how they rock the world and we should be grateful and the rest of us are losers.  Smartness is a result of a.) recruiting practices and b.) working conditions.  I think I’ve said this before but the American workers most in need of a union are Wall Street analysts and associates.  Before we go any further, let me describe the hierarchy of the typical Wall Street working units.

The Front Office is where the wheeler dealer types work.  These people have more direct contact with clients.  They are more extroverted, relationship oriented, aggressive and the population is weighted towards males.  In the Front Office it helps to know how to play golf.  It also helps if you are a Skippy or Biff with a family pedigree and lots of connections.

The Back and Middle offices are where management analysis and the nitty gritty of the trading and dealing gets accomplished.  Trades are finalized, paperwork processed, and expertise is developed for certain types of financial transactions.  These kinds of jobs don’t require the wild and crazy extroversion of the front office.  They also don’t get the prestige of the front office or the best bonuses.  And because they don’t make the money of the front office, their work habits are also different.

The basic work unit of a Wall Street firm has the following hierarchy in descending order:

Managing Director

(various levels of senior vice presidents)

Vice Presidents



Let’s talk about the first influence on the culture of smartness, the recruiting process.  To become an analyst on Wall Street, you only really need to meet a couple of  criteria.  You need to be a student of one of a handful of prestigious Ivy League universities and it helps if it the university is either Harvard or Princeton.  What you do not need is a degree in economics or finance.  If you’re an analyst, you don’t need an MBA.  You could be an English major and still be recruited.  Contrast this with the pharmaceutical industry where researchers are primarily hired by their major and it is expected that you will continue your education.  This has varied over the years.  At one point, it was very difficult for PhDs to get hired and BS and MS level scientists were highly employable.  This is no longer the case.  But in general, your level of expertise in a particular subject area is very important to research and the interview process includes presentations on your work and publications. This is not so on Wall Street where status and pedigree are more important.

There are only a couple of ways to get into Princeton.  You can come from a certain socio economic background or have the benefit of being a legacy, or you can be an elite student.  I’m going to risk nasty comments by saying that with the influx of Asian nationals in the late 80s and early 90s came a culture that produced many of these elite students.  My own daughter is in classes in high school with many kids from Asian families and they are driven.  You can pile extreme amounts of homework on them a night and they will pull an all nighter to finish it.  My kid is wicked smart but last year when her social studies class was doing this (while her Stanford English class that she takes online wasn’t, go figure), she wasn’t getting enough sleep and I complained to the school.  Don’t ever complain.  Because then you don’t get the privilege of completing a pile of honors social studies work at night.  They’ll just replace you with another Asian student who will do the hours of mind numbing work.  And let me just add here that the quality of the assignment is not high.  These are not assignments that require a high degree of creative thinking or insight, compared to something like a Stanford OHS class where assignments are fewer but meatier.  The are just many.  This is the environment of the elite student at a high school 10 miles from Princeton.  There is a ton of homework and the expectation is that it will all be accomplished with the highest degree of perfection.  There won’t be a stray mark on a paper nor will it be formatted incorrectly.  In fact, a lot of time is devoted to formatting because teachers around here tend to freak out if their orders are not followed to the letter.  Lots of points deducted, never mind the amount of work and research that went into a project. Formatting frequently counts more than content.  Image can hide a lot of mistakes and faulty thinking.

Now, translate that high school environment to the job requirements of a first and second year analyst and you’ll get a pretty good picture of what it is like to work in a front office unit of a Wall Street firm.  Deals are done by the Vice Presidents whose business it is to set them up with clients.  The associates and analysts do the grunt work. The analysts who are recruited from Princeton have had about 2 months of training in the art of finance before they start working.  A typical week on Wall Street is between 80-110 hours of work.  I never thought I would feel sorry for these guys but after I heard about their work life, there is no doubt in my mind that they are being abused by their institutions.  They are praised for being “smart” but then they are strapped into this job where the work isn’t really that intellectually demanding but they must have the physical and mental endurance of a marathon runner.  That is, a marathon runner who runs marathons every day of the week.

You have to ask yourself why they do this given that the work isn’t really that fun.  Part of it has to do with a peculiar form of “love bombing” that happens during recruitment.  The student is constantly praised for being smart and elite.  The flattery must be nauseating but if you’ve had the rarefied experiences of Princeton and know what it’s like to have dinner at an exclusive eating club for a couple of years, it’s just something you’ve come to expect.  The other reason they work like dogs has to do with the compensation package.  Everyone has a two component package of compensation.  The straight salary is meh.  On a per hour basis, the institution is probably only paying these people minimum wage or less.  The rest of their salary, as much as half, is made up of the bonus.  With the bonus, you probably get compensated fairly for the amount of work you put in.  Please note that I’ve said nothing about the quality of that work, only the quantity.  You will eventually get paid for the quantity.

The quality is questionable.  What Wall Street trains these analysts to do is not much more than high class spreadsheet jockeying.  This is not rocket science.  Anyone, even those of us without elite ivy league degrees can do this work.  You need to be trained to find the information, know what the various aspects of the company or industry your analysing  are and what they represent, and know the rules about how to package that information in order to pass it to the associate.  The associates usually have MBAs but this too is not rocket science.  Getting a degree in business doesn’t require any kind of innovation and takes far less time than getting a PhD in oncology molecular biology.

To buy into the culture of smartness requires a generous amount of self delusion.  It’s like making a high stakes purchase.  After you’ve bought the house of your dreams, you rationalize how wonderful it is even if you later find out that you’re sitting on a toxic waste dump.  Obviously, you’re there, in the most prestigious job in the world surrounded by all these smart people, whose talents are completely wasted on Wall Street by the way.  You must have gotten there through merit and an extreme degree of smartness, certainly more smartness than other people who work in say, corporate labs, for example.  THOSE people don’t work half so hard as you do.  They’re lazy and stupid and their bonuses are not as big as yours.  How could they possibly be called innovative? See how this works?  Smartness is associated with the willingness to be exploited for money and pretty soon, that’s all the analyst is working for- money.  Because no sane person would put up with the working conditions in a mind numbingly boring job moving numbers around on a screen and risking getting reamed or potentially fired for incorrectly formatting bullet points on a powerpoint presentation (yes, this really happens).

It is absolutely true that labrats do not work this hard.  We work pretty hard but I don’t think even my hours came out to 80-110 hours per week for a year without a break.  Of course, there’s a reason for that.  A lot of research means waiting around for things to finish before you can go to the next step.  We even call them “rate limiting steps”.  In the meantime, you can fill out your lab notebook or order supplies or attend meetings or talk to your colleagues about your projects or nothing at all.  And if you know your next experiment is going to take a whole day, you go home and sleep and start it up the next morning.  You don’t stay in the lab all night (although I was starting to get the distinct impression towards the end that upper management wouldn’t have a problem with a standard 16 hour workday even if fatigue eventually leads to safety issues in the lab). The “rate limiting steps” also allow the brain to process information and solve problems.  I used to like the downtime of rate limiting steps because the brain can relax and sometimes the best thoughts happen when the mind is untethered by tedium and routine and can float free.  It was then that I had my eureka moments or saw something in a protein that I hadn’t seen before.  Anyway, my point is that our brains sometimes needs “rate limiting steps” to have insight.  And this is something that Wall Street does not get.  There are no rate limiting steps on Wall Street.  In fact, Wall Street workers would be horrified at the very idea of downtime.  For them, the pace and frenzy of the work is all consuming.  They don’t have time to really sit down and think about what they’re doing.  All they have is deadlines and a pile of stuff to accomplish before they go home.

Ho says that about 50% of her informants weren’t happy in their jobs.  This might have to do with the degree of prestige.  If you work like a maniac at a low level or in the back office, your rewards are smaller and your smartness often isn’t acknowledged.  But what keeps people on Wall Street is the money.  If you’ve sacrificed much of your life for a year, and I do mean sacrifice, you want to be paid.  So, until there is a change in the employment conditions of the typical Wall Street worker, there will be a lot of resistance to eliminating or reducing bonuses.  They are perfectly justified in saying that they worked hard and deserve compensation.  The problem with their compensation is that there is no positive or negative reinforcement at the time the work is accomplished.  Compensation is based on a deferred reward system and it’s not correlated with true performance.  In the mind of the worker, it is tied to quantity, number of hours worked, number of deals made, number of securities sold, etc.  In fact, with the deferment, cause and effect are completely disconnected except in that the worker associates the amount of work with the expectation of a future payoff.

Now, as Wall Street culture of smartness is exported to the pharmaceutical industry, what do we see?  We see an increasing emphasis on recruiting from the “best schools”.  In this case, there are also only a handful of them located on the coasts.  There are two major centers of pharma research developing in the Cambridge, MA area, where Harvard and MIT are located, and in the San Francisco Bay area where Stanford is located.  San Diego might also be included but that area has been hit by a lot of layoffs lately as well.  If you don’t have a degree from these universities, or some other highly prestigious lab, your chances of getting a job in research these days is vanishingly small.  It is now assumed that anyone without this pedigree will end up doing nothing but grunt work at a CRO or making injections into an HPLC at an analytical shop.  So, if you weren’t born well connected or intellectually uber gifted or driven, driven, driven by your Tiger Mom, well, you’re SOL.  And that’s a shame for the industry because it means that fewer people will have the opportunity to have those eureka moments.  The work is already pretty hard stuff.  It’s much more intellectually demanding than what a spreadsheet jockey anthropologist on Wall Street will experience after 2 months of training.  Sometimes, it takes years to figure out what’s going on in a biological system or have an insight that changes the way you think about a mechanism.

These days, scientists are recruited for their pedigree and expectations are very high that their “smartness” will lead to breakthroughs because they are the experts in their fields and graduates of elite universities.  They will manage the lives of dozens of CRO chemists who have been reduced to doing mind numbingly routine synthesis in China and India.  The whole process of discovery has been reduced to “need to know”, “just in time” assemblage of pieces parts.  The flow and coherence of the project work and the problem solving strategies of multiple disciplines working together is being dismantled.  Research is now done with the goal of “flexibility”.  That will be part 2 of this analysis.