Comments on: Finance: more on those fat cats and running rats

By: Seppo

Seppo — Wed, 08 Oct 2008 18:45:56 +0000

People in politics or in Hollywood have their value systems as well, money is important but acclaim, being seen as a power player, having successful and celebrity people regard them as peers… that becomes the primary motivation. The universities have their own hierarchies, and envious players seeking to claim their place in them.

In the commercial world, it is addiction to success and craving acceptance by the right kinds of high achieving peers that seems to matter once certain financial hurdles are passed.

I know a CEO and a private equity guy, both from mundane schools and modest small town backgrounds. They worked hard for career and financial success, and achieved that. In the process of thriving in that world, they continuously judged their progress against some other high achievers who were otherwise repugnant in their conduct and values.

Both now have a hard time avoiding making excuses for the crass robber barons and the disgraced white collar criminal types with whom they have crossed paths. After all, they know how hard it has been to achieve their own success, and can’t be too critical of even those who have violated their own standards of decency and honesty. Besides, that guy can’t be a total figure of shame, look how much he donated to his alma mater, they named a building after him…

By: Artfldgr

Artfldgr — Wed, 08 Oct 2008 17:34:14 +0000

from a VCs perspective… i think it explains why these CEOs who are often founders get so much. for the most part, the public wants a good reason, not necessarily that the public wants remuneration to stop.

I am not certain how other VC’s feel, but I like to see the various members of the management team have enough equity each that they

a) think like equity holders versus just salaried employees and

b) are excited to come into work each morning to build value for themselves.

In a nutshell, you pay them less, they wont do so much as they are employees not stake holders.

fuld lost 485 million shares of lehman… he wasnt an employee earning a lot, he was a stake owner whos whole life and its outcome is intimately tied to the firm. they become married to the firm this way.

By: Count to 10

Count to 10 — Wed, 08 Oct 2008 15:33:47 +0000

I would say that, after a certain level of income, occupations may become hobbies, with dollar amounts as the score.
…
Having written that, I am trying (unsuccessfully) to think of a how I could be wrong: I don’t think I like the implications of that thought. Um, help?

By: ELC

ELC — Wed, 08 Oct 2008 02:11:39 +0000

Some call what motivates them greed, and I’m not really disagreeing with that. But I actually think what drives them even more strongly has a slightly different flavor; I think much of it has to do with status and identity and a feeling of self-worth—run amok. C.S. Lewis said somewhere that, after a certain point, greed does not account for the continuing desire to accumulate more money: after a certain point, it’s pride.

By: Artfldgr

Artfldgr — Wed, 08 Oct 2008 00:48:13 +0000

I didnt think you were… you have always been honest as far as i can tell, and fair.

By: neo-neocon

neo-neocon — Wed, 08 Oct 2008 00:47:03 +0000

Artfldgr: I don’t know why either. I’m not censoring you for length (although it is definitely true that you have a tendency to run on). My spam filter sometimes has a mind of its own.

By: Artfldgr

Artfldgr — Wed, 08 Oct 2008 00:45:51 +0000

[cant post more than that... dont know why]

By: Artfuldgr

Artfuldgr — Wed, 08 Oct 2008 00:43:08 +0000

Fuld went to work for lehman at 23 out of school, he worked his way up in the company, its the only job he has ever had.

By: soupcon

soupcon — Tue, 07 Oct 2008 23:23:54 +0000

The ethos at the top of large investment banks is driven by pride, and there is very much a shame culture at all these firms.Fuld is humiliated, as was Jimmy Cayne from Bear Stearns.I’ll wager that Alan Schwartz didn’t stay at JP Morgan because of his shame;facing that everyday eats at their guts,particularly when Bear prided itself on it’s own risk management skills,known to be the best on the street.They were known as the Sparta of WS for a very good reason.

Lehman was furiously bailing water, trying to avoid the appearance of panic so as not to precipitate a run on the company.To manage staying ahead of the tsunami is a terrible thing, especially for a driven type A like Fuld.He was a lifer, committed to the greater good of Lehman.Now it’s all gone.I’ve long thought it’s folly for IB’s to have such a huge amount of their comp in vested stock, just in case the worst does happen,but in these firms, they push loyalty and pride of place to the max,so to practice prudent savings and diversification gets treated as an act of betrayal.

Wall St firms are torn between shareholders wanting higher earnings growth,which requires more leverage on the balance sheet, and employees pushing risk levels so to keep up to their competitors and grow market share and book value of equity, and the risk depts that have to worry about overextension of the firm’s capital.

There is an irony missing in all the finger pointing about excessive comp levels.Investment banks do what all the good governance types want done: focus on shareholder equity,take large amounts of stock for employees so to align workers with shareholders,etc.Except there’s one variable that is outside their control, but can negate years of prudent management:confidence.Once that goes, these companies can go into a death spiral.

By: Fred

Fred — Tue, 07 Oct 2008 23:11:53 +0000

1. A lot of what neo said can be summarized: “Business is a competitive sport”. In other words, if you’re going to play, you may as well try to win the championship. Otherwise the game is no fun.

And somebody gets the gold, and somebody else the silver…

I’m in software, and I think Bill Gates and Steve Jobs treat business that way. Most working class folks don’t.

2. If you want to blame the failures on greed, it is only fair to blame the successes on greed also.

There is also a (serious) theory that the root cause is the do-gooders, not the greedy, who distorted the market with GSE’s to provide ownership to the underfunded.