Path dependency is a bitch.
Diligent readers of these pages will recall I first addressed the relative paucity of women in investment banking (and the related area of private equity) well over five and one-half years ago. I addressed a number of commonly-held arguments why this might be so, and I rejected most of them for the assertion, based upon my own experience and perception, that there are few women in my industry because most women are simply not interested enough in becoming or remaining an investment banker. Acknowledged in my argument were the indisputable facts (to me, at least) that a) those women who did stay and make careers in corporate finance or M&A were at least as tough, competent, and successful as their male peers and b) the often impossibly demanding nature of the job made me wonder why anyone of any gender would want to stay in it if they did not have to.
I also pointed out that the mostly American investment banks I’ve belonged to have made sustained and (in their eyes) heroic efforts to redress this imbalance ever since the mid-1990s, if not before. While sustained attention and encouragement to boosting the hiring of women and other minorities1 did increase their uptake of female university and business school graduates into entry-level analyst and associate classes, it seemed most banks simply could not hang onto the women they hired. Additional measures were taken, including outreach through corporate and extra-corporate affiliation groups like 85 Broads, more aggressive recruiting on business school and college campuses, and internal sensitivity programs geared toward eliminating sexist and other discriminatory behavior as well as dampening down the traditional frat house atmosphere common in many parts of banking, especially the trading floors. Unfortunately, from what I can tell, none of these measures seems to have had much success. In fact, there seems to be approximately the same number of women in investment banking now that there was at the beginning of the 1990s, before the industry itself began to swell like a tick on a dog and (related, maybe?) investment banks began to realize they better increase the diversity of their professionals.2
Now we have actual data out of the United Kingdom which confirm the lack of progress in this area:
For every woman in a UK Financial Services Authority controlled function at a top global bank operating in the City of London there are, on average, five men in similar positions, according to Financial News analysis. FN looked at the gender split at the top-10 banks operating in the UK, based on the Thomson Reuters league table for global investment banking fees in 2012. This group comprised JP Morgan, Bank of America Merrill Lynch, Goldman Sachs, Morgan Stanley, Citigroup, Credit Suisse, Deutsche Bank, Barclays, UBS and Wells Fargo.
A few things are worth noting about this report. First, while the bankers being tallied all work and/or are registered in the UK, virtually every bank on the list is domiciled in America or Europe. Only little old Barclays, after its ingestion of Lehman Brothers in the U.S., flies the Union Jack for Britain. So, while we might guess some of this stasis could be put down to the allegedly less evolved attitudes toward women in the UK banking sector,3 we cannot ignore that the culprits in question are global banks with robust global diversity and recruitment policies which are supposed to militate against such outcomes. Second, the FSA controlled function filter is a good one. It captures most everyone who actually qualifies as a “front office,” client-facing investment banker or trader, as opposed to file clerks, IT support people, and other back office and staff drones who can only legitimately claim to be an “investment banker” when they are buying a £300 bottle of vodka for clueless university co-eds at a Soho nightclub. This is important, for the presence of women in non-client-facing, staff positions in investment banking is disproportionally high.4 Last, the proportion of women in FSA-controlled positions in investment banking is disturbingly unchanged at only 18% from the first time the FSA collected these statistics in December 2001.5
These figures are broadly consistent with my own anecdotal experience over the course of my career. I cannot and will not speak for the sales and trading side of the house, or proprietary trading, but in my hermetically sealed world of corporate finance and M&A the gender balance has stuck roughly in this neighborhood for the last 20 years or so I have belonged to the investment banking guild. At each firm I have belonged to, the number of women in middle-level or senior client-facing or money-making roles has always amounted to ten percent or less of their peer group. The ones with seats are good, aggressive, successful bankers, just like almost every one of their colleagues, but they were and are scarce, notwithstanding almost two decades of determined efforts by most of these banks to boost their number.
The burning question, of course, is why.
The easy answers—that investment banks actively discriminate against women, that the investment banking “boys’ club” constitutes an unreconstructedly hostile environment for women, or that investment banks are indifferent to improving their gender balance—are demonstrably wrong. Just reading that Financial News article should disprove the first and last of these. I can assure you from personal experience on recruiting and hiring committees that the banks I’ve worked at have gone out of their way to recruit and hire more women, even to the extent of favoring them over other, equally talented male candidates. If you are a smart, driven, aggressive woman, you have an advantage getting into investment banking. Trust me: every bank from Goldman Sachs on down will put its thumb on the scale on your behalf.
The question of environment is a more nuanced one. It cannot be questioned that investment banking—even in the supposedly hushed, buttoned-down precincts of corporate finance and M&A, where I work—is a tense, aggressive place marked by high stakes, intense pressure, and occasionally treacherous infighting. In the not-so-distant past, it also cannot be denied that this environment, dominated as much as it has been by men, often degenerated into cursing, yelling, and fratboy-ish misbehavior likely to offend women, or worse. Overt sexism and sexual harassment were prevalent, just as they were in many industries in this country, and men in positions of power made fools of themselves at women’s expense. But it has been many years since investment banking management has been willing to ignore such hijinks. Now, every bank of size has extensive formal diversity programs and sexual harassment policies in place. These policies have put an end to all kinds of subtle and overt discrimination and behaviors that women and other minority groups might find offensive. Gone are the days when banks turned a blind eye to bankers entertaining clients at strip clubs, Managing Directors hitting on their subordinates, or employees emailing pornography around the corporate intranet. These things still happen every now and then, of course, but when they do the victims have a ready and willing ear for their complaints and the offenders are often fired on the spot.
The tension and aggressiveness of the business remains, however. Given the stakes and money involved, that will never change. But anyone who thinks women cannot succeed in an environment characterized by high pressure performance expectations, political jockeying, and the occasional streak of bad language obviously does not know a lot about women. The successful women bankers I know give as good as they get. What remains can only be characterized as “hostile” by people who cannot tolerate high pressure work environments. That applies to most people, regardless of gender. If that applies to you, we in the industry continue to invite you not to apply for a job in our pressure cooker, no matter what form your personal plumbing takes.
It is true, as the FN article states, that the number of women who join corporate finance and M&A straight out of college or business school has climbed to a substantially higher percentage than it was in the past. (It remains well short of parity, though.) As I look around my floor, I see women comprising much more like 30 to 40% of the junior bankers below the level of Vice President. I get the sense that this is common across the industry.
We hire less than half of our incoming analyst classes from among women, notwithstanding equal or near-equal gender balances in university populations, because fewer qualified female candidates apply than men. Part of this is due to fewer women enrolling in business, finance, and economics majors, which puts them at a comparative disadvantage relative to men from those same programs. While I have stated in the past that I think extensive prior exposure to finance and accounting is highly overrated as a job qualification for corporate finance or M&A—and I still believe it—I cannot deny that not having those qualifications when everybody else does reflects poorly on a candidate’s demonstrated interest in my profession. It is hard to trust a potential employee has the drive and ambition to spend 100-hour weeks, weeks at a time, modeling and preparing financial presentations when they have not demonstrated significant commitment to similar work in their coursework. And the key criterion we select for in my business, alongside general intelligence and drive, is a burning desire to be an investment banker. Speaking from experience, you have a much higher hill to climb to convince a bank recruiter you have this when the most extensive exposure to numbers you can relate is the time you indexed a professor’s monograph on 19th Century Catalan poetry.
Even in business school, where credentials are more evenly distributed, it seems fewer women in each class apply to investment banks than men. In the dark ages when I got my MBA, there were lots of women in my class, but virtually none of them applied to banks. They opted for marketing, international business, or general corporate roles instead. Perhaps that has changed in the interim, but we can’t hire women if they don’t apply for a job in the first place.
But the real question, nowadays, is why, having hired women into a third or more of our junior professional positions, less than half of them stay as they rise in the ranks.
One answer could be that, notwithstanding banks’ mostly successful efforts at eliminating overt sexism and discrimination, women get tired of dealing with and/or get shown the exit early due to covert, subconscious, or institutionalized sexism. In other words, senior male colleagues and peers discriminate against women without even knowing it, say, by assigning them lower quality projects, more difficult clients, or impossible bosses. It is certainly possible. Women are scarce in investment banks, so few male investment bankers get to work with, for, or opposite them and thereby have any conscious or unconscious prejudices proved wrong. If embedded sexism exists, it may well be self-reinforcing. But this ignores the project-based, episodic nature of our work, which is very hard to manipulate, the extraordinarily important influence of luck on real and perceived success, and the fact that an important skill in investment banking is learning how to make lemons into lemonade. At a junior level, superior performance is measured by a relentlessly positive attitude, hard work, attention to detail, and an eagerness to do anything and everything your superiors want and need. At more senior levels, where a banker begins to manage clients and deals directly, performance is measured directly by monetary results, which depend not only on effort and intelligence but also on luck. Both of these sets of criteria are largely in the control of each individual banker, and their evaluation is public enough that it would be very difficult to consistently manipulate it in a sexist or discriminatory fashion.6
Another answer may be that the duration, timing, and demands of an investment banking career are simply incompatible with many women’s other important interests. In particular, while an analyst typically has a two- or three-year stint directly after college, after which most are encouraged to leave and get an MBA (and some elect to make the jump into private equity or hedge funds), a woman entering investment banking as an associate after business school can anticipate at least a decade before she can begin to exercise some measure of control over her life. Associates usually start in their mid- to late twenties, spend three to five years before promotion to Vice President, and then spend four to seven years or more getting to Managing Director. All during that time, they work incredibly long hours, travel like maniacs, and basically do not have any personal life to speak of. For many women, this span from their mid-twenties to their mid-thirties coincides with what they envision as the period when they will get married and start a family. While this is true for many men, also, I think most of us can agree that committing to a career in investment banking is a much more fraught and difficult decision for a woman than it is for a man. This stage is also one when junior bankers are not making enough money to make it feasible to hire full time help to care for young children. A female Vice President is certainly physically capable of having a baby while traveling 150 days a year and working upwards of 80 hours per week, but unless her spouse or partner is rolling in dough him- or herself (or willing to stay at home), she simply will not be able to afford to outsource its care.
A final answer may lie in the nature of my business itself. As I have explained many times before, corporate finance and M&A are extremely expensive, intangible commodity services. They are not sold or bought on the basis of superior service quality (which is effectively impossible to determine, either ex ante or ex post) or price (which is largely uniform across providers). The services we sell (mergers, IPOs, LBOs) tend to be extremely important and very frightening to our customers, who tend to be infrequent and inexperienced buyers of those services. Accordingly, they usually rely on two chief factors to choose their service provider: the bank’s own brand name and reputation, and their trust in the senior banker pitching for the business. Trust, and the relationship it is built on, can only be cultivated over time between a banker and a client who are in some important ways sympatico. Among the features which drive such sympathy, we must surely include personality, background, common interests, and compatibility. It is not unreasonable, at least to me, to think some clients would accordingly be more comfortable selecting an investment banker who happens to be more like them; that is, one who is also a man or woman. One would certainly expect this effect to be strong among sexist men.
To the extent this last factor has any effect on the selection of investment bankers by clients, which I would argue it does, at least at the margin, we might be able to explain why so few women succeed as high-powered corporate finance or M&A bankers. It may be because, as we all know, so very few of the CEOs and board members selecting investment bankers in this country tend to be women themselves, and so many of the men in those positions are sexist bastards.
In other words, the problem of too-few women in senior investment banking positions is likely to be much bigger than investment banking. You’re just not gonna be able to replace the QWERTY keyboard with another goddamn seminar.7
Richard Partington, Gender split little changed for a decade (Financial News, February 26, 2013)
Fingernails that Shine Like Justice (May 21, 2007)
Mine’s Bigger Than Yours (April 14, 2007)
Recipe for Success (October 19, 2007)
If the Phone Don’t Ring, You’ll Know It’s Me (October 1, 2011)
1 Relax. I mean minorities in my historically white, male, Caucasian industry. Just checking to see if you’re paying attention.
2 Economists and social scientists alike will be displeased to learn I am basing my perceptions of gender imbalance in my industry, then and now, on anecdotal evidence witnessed and collected firsthand by Yours Truly and trustworthy firsthand sources known thereto. That being said, however, I do get around. Also, if there has been a firm or two comprised primarily of Amazon warriors conducting distaff investment banking in relative obscurity for the past 20 years or any portion thereof, I must say they’ve kept a damn tight lid on it.
3 Alleged by a small number of female investment bankers who have lived and worked in both the US and the UK and not disputed strenuously by the males I’ve discussed it with. While attitudes have apparently changed, some of the stories I’ve heard from London trading floors in the 1990s would make the most determined American male chauvinist’s toes curl.
4 The difference between client-facing, revenue-producing or line positions and staff positions is critical. The former generate all the money; the latter, while critical, only support line workers as they make money. Line workers, like salespeople everywhere, make much more money that staff workers. Line departments are profit centers; staff departments are cost centers. Investment banking employment of women is dominated by staff positions: administrative assistants (almost 100%), human resources (almost 100%), legal and compliance (probably much more than 50%), finance, and administration.
5 From the Financial News article:
There were 16,034 individuals holding controlled functions at the top-10 banks at the end of January this year. Of these, the gender of 249 employees could not be identified due to unclear data. Of those who could be identified, 12,959, or 82%, were men, while only 2,826, or 18%, were women.
To add to the discomfort of this stark imbalance, FN analysis also shows that little has changed in more than a decade.
At the end of December 2001 – the first year in which the FSA kept a register of approved persons – the same 10 banks employed a total of 15,469 employees in controlled functions. The gender of 268 of those employees could not be identified due to unclear data. Of those who could be identified, 12,422 were men, or 82%, and 2,779, or 18%, were women.
As an aside, I find it intriguing how little changed the absolute number of controlled persons is from 2001 to present. I would be very interested to see a time series of this data over the intervening decade.
6 Perhaps some women get discouraged by the senior women already in positions of power in the industry, as a recent study of professional women in other industries suggests. I have not seen this in action (although why would I?). However, it goes contrary to the fact that junior bankers tend to work with a number of senior bankers, men and women, and talented bankers have more flexibility to find a satisfactory working relationship both within their own firm and at competing firms. Junior women do not get automatically assigned to female senior MDs.
7 Which isn’t to say, naturally, that we shouldn’t try. I’m on record for getting more women into the industry. We need the talent. I’m just saying we won’t be able to do it all by ourselves.
© 2013 The Epicurean Dealmaker. All rights reserved.