Wednesday, September 27, 2006
Bernanke's Beard, Greenspan's spam: Fed Up? Short the US economy.
It is a truth universally acknowledged that a slowing economy, possessed of rising inflation, must be in want of higher interest rates. The Fed has been delaying the inevitable for the last ten years. Conventional wisdom says Greenspan did a great job as a central banker, avoiding US economic meltdown and ensuring a soft landing after the dot com bust. I'm not so convinced, by cutting interest rates all that happened was that another liquidity bubble was created, mostly in the housing market and private equity. This has led to the current predicament of 'loose credit' and an increased current account deficit. Is that really symptomatic of a healthy economy. This has created Bernanke's bind, to raise or not to raise. Once you look through the obsfuscatory language and reliance on dodgy labour and consumer data, the only thing that becomes apparent is that the Fed should raise rates. Whether it does is another question. That commodity prices have fallen recently, especially oil, doesn't necessarily mean they will stay like this in the medium term. The inflation risk in the US economy is hugely underestimated, partly because it's hard to get a clear picture of economic health without M3 figures, which inexplicably the Fed has stopped reporting. Why is that? Is the US just printing money so much money that it would make a mockery of the fiat money system that underpins it's economic dominance. The answer is probably yes. If foreign investors start buying alternative asset classes or abandon the dollar as a reserve currency, then the dollar devaluation is only just beginning. It maybe that petrodollars in the middle east and Russia may end up as petro gold. In which case it's a good time to bail out of US equities and treasuries.
RB
See also
http://www.washingtonpost.com/wp-dyn/content/article/2006/04/26/AR2006042602529_pf.html
RB
See also
http://www.washingtonpost.com/wp-dyn/content/article/2006/04/26/AR2006042602529_pf.html
No Way! Could this be true? CFO reveals all.
From FT.Com
Fastow accuses Enron bankers
By Ben White in New York and Sheila McNulty in Houston
Published: September 26 2006 18:41 Last updated: September 26 2006 21:48
Andrew Fastow, the former chief financial officer of Enron, has accused 10 leading investment banks of helping the now-bankrupt energy group falsify its books in return for big advisory fees.
The accusations came in a 24-page legal declaration filed by Mr Fastow in support of a class action lawsuit against the banks brought on behalf of Enron’s shareholders.
The declaration from Mr Fastow, who was sentenced on Tuesday to six years in prison for his role in Enron’s collapse, could put new pressure on banks that have not yet settled in the class-action case.
In his statement, Mr Fastow said he viewed Enron’s bankers as well-paid “problem-solvers” who knowingly helped Enron created financial structures that made the energy trading company seem more profitable than it really was.
Mr Fastow singled out Merrill Lynch, Credit Suisse, RBS and Barclays as especially involved with creating what he described as deceptive structures.
Attorneys for Enron shareholders, led by Lerach Coughlin, have already won $8bn in settlements from a group of banks including Citigroup, Bank of America and JP Morgan Chase.
A federal judge has previously dismissed Deutsche Bank and Barclays from the class action suit. But William Lerach, the lead attorney in the case, plans to ask that the two banks be reinstated in light of the declaration.
G. Paul Howes, an attorney for the Enron plaintiffs, spoke on Mr Fastow’s behalf at the sentencing hearing in Houston on Thursday, asking for leniency to reflect his co-operation with the shareholders’ suit.
Legal experts noted that Mr Fastow’s statements were tainted by his desire for leniency and his admission of falsifying financial statements.
However, experts also said that Mr Fastow was well positioned to describe Enron’s dealings. Mr Fastow was deeply involved in creating the off-balance-sheet partnerships that helped cloak Enron’s mounting debt.
“He is in the best position to know exactly what was said or not said and what kinds of winks and nods were going on,” said Henry Hu, professor of law and business at the University of Texas.
Mr Hu added that Mr Fastow’s co-operation with the shareholders’ suit would increase pressure on the remaining banks to settle.
Mr Lerach defended Mr Fastow’s credibility: “Everything Fastow will say is documented by the damning and incredible e-mails these bankers wrote to each other when these schemes were going on,” Mr Lerach said.
Mr Fastow, 44, broke down repeatedly when addressing the federal court, saying: “I wish I could undo what I did at Enron, but I can’t.”
Copyright The Financial Times Limited 2006
Fastow accuses Enron bankers
By Ben White in New York and Sheila McNulty in Houston
Published: September 26 2006 18:41 Last updated: September 26 2006 21:48
Andrew Fastow, the former chief financial officer of Enron, has accused 10 leading investment banks of helping the now-bankrupt energy group falsify its books in return for big advisory fees.
The accusations came in a 24-page legal declaration filed by Mr Fastow in support of a class action lawsuit against the banks brought on behalf of Enron’s shareholders.
The declaration from Mr Fastow, who was sentenced on Tuesday to six years in prison for his role in Enron’s collapse, could put new pressure on banks that have not yet settled in the class-action case.
In his statement, Mr Fastow said he viewed Enron’s bankers as well-paid “problem-solvers” who knowingly helped Enron created financial structures that made the energy trading company seem more profitable than it really was.
Mr Fastow singled out Merrill Lynch, Credit Suisse, RBS and Barclays as especially involved with creating what he described as deceptive structures.
Attorneys for Enron shareholders, led by Lerach Coughlin, have already won $8bn in settlements from a group of banks including Citigroup, Bank of America and JP Morgan Chase.
A federal judge has previously dismissed Deutsche Bank and Barclays from the class action suit. But William Lerach, the lead attorney in the case, plans to ask that the two banks be reinstated in light of the declaration.
G. Paul Howes, an attorney for the Enron plaintiffs, spoke on Mr Fastow’s behalf at the sentencing hearing in Houston on Thursday, asking for leniency to reflect his co-operation with the shareholders’ suit.
Legal experts noted that Mr Fastow’s statements were tainted by his desire for leniency and his admission of falsifying financial statements.
However, experts also said that Mr Fastow was well positioned to describe Enron’s dealings. Mr Fastow was deeply involved in creating the off-balance-sheet partnerships that helped cloak Enron’s mounting debt.
“He is in the best position to know exactly what was said or not said and what kinds of winks and nods were going on,” said Henry Hu, professor of law and business at the University of Texas.
Mr Hu added that Mr Fastow’s co-operation with the shareholders’ suit would increase pressure on the remaining banks to settle.
Mr Lerach defended Mr Fastow’s credibility: “Everything Fastow will say is documented by the damning and incredible e-mails these bankers wrote to each other when these schemes were going on,” Mr Lerach said.
Mr Fastow, 44, broke down repeatedly when addressing the federal court, saying: “I wish I could undo what I did at Enron, but I can’t.”
Copyright The Financial Times Limited 2006
Thursday, September 21, 2006
Practical advice for the C-Suite, Maximising your bonus:4th Quarter Strategy
The Harvard Business Review always refers to the C-Suite managers. The C doesn't stand for what you think it does.There is no need to be like that, the C- suite managers are people too, they have feelings as well. The C of course stands for Chief. CEO ( Chief Entertainment Officer), CFO ( Chief Fraud/Fudge Officer - the numbers looked right to me - I had no idea they were wrong! - please not so hard with the hand cuffs - I'm a professional you know), the CAO ( Chief administrative Officer- mostly involves signing for stationery and other stuff).
Today for one day only I am offering free advice, nothing new just practical hints really, on how to max out your compensation for year end.
The 4th Quarter is approaching fast. Most banks, asset managers and other finance houses have reported extremely good numbers for revenue and net profit over the first 2 quarters. Goldman announced record results, even the basket case that was Morgan Stanley announced record results.But as a senior member of the firm how do you make sure you are personally enriched beyond measure for the work of the minions? These are exceptionally profitable times, you should profit exceptionally. But did you notice something about Goldman's compensation ratio, it's falling ( down to 45.2%), and Morgan Stanley's Value at risk figure is down ( from 63$ million to 52$ million). This is not a good omen for employees ( not C-suite managers, they are more in the nature of sinecures and would not count as workers, so you can sigh a breath of relief). This surely means that the revenue and profit outlook in the 4th Quarter is not as robust as earlier quarters. Why keep comp costs down when profits are booming, why take less risk on the trading book unless you think the risk/reward profile is deteriorating.
Now the way it stands at the moment most companies have record profits. The problem as a C-suite manager is how do you avoid sharing it. Think of it like this. The profits are a big cake ( maybe carrot and banana), why divide them among 10 people if you can divide it between 5. You get a bigger part of the cake see.
The only way to do this is to get rid of the other 5 cake eaters, and as a C-suite guy you need to do this fast and certainly before year end. The best and most reliable method of leaving more for yourself is by sacking all the employees. If this was practical I would heartily recommend this, but the next best thing is to start re-structuring, managing people out and offering redundancy. This is the only way you will be able to report exceptional or in-line year end profits and drive the value of your own compensation package up when the shares peak in response to the great results you will deliver in the 4th Quarter, even though trading conditions were very challenging. Hell your paper might become so highly rated you could even take over a competitor and sack everyone in that firm too.Happy days!.
Basic Principles
Get the employees off the payroll fast, do it now so you can take a one-off exceptional for severance costs in Q4 if you have to pay any.No company wants to pay out free money. It's just wrong.Remember you will not have to pay severance in the following circumstances:
Today for one day only I am offering free advice, nothing new just practical hints really, on how to max out your compensation for year end.
The 4th Quarter is approaching fast. Most banks, asset managers and other finance houses have reported extremely good numbers for revenue and net profit over the first 2 quarters. Goldman announced record results, even the basket case that was Morgan Stanley announced record results.But as a senior member of the firm how do you make sure you are personally enriched beyond measure for the work of the minions? These are exceptionally profitable times, you should profit exceptionally. But did you notice something about Goldman's compensation ratio, it's falling ( down to 45.2%), and Morgan Stanley's Value at risk figure is down ( from 63$ million to 52$ million). This is not a good omen for employees ( not C-suite managers, they are more in the nature of sinecures and would not count as workers, so you can sigh a breath of relief). This surely means that the revenue and profit outlook in the 4th Quarter is not as robust as earlier quarters. Why keep comp costs down when profits are booming, why take less risk on the trading book unless you think the risk/reward profile is deteriorating.
Now the way it stands at the moment most companies have record profits. The problem as a C-suite manager is how do you avoid sharing it. Think of it like this. The profits are a big cake ( maybe carrot and banana), why divide them among 10 people if you can divide it between 5. You get a bigger part of the cake see.
The only way to do this is to get rid of the other 5 cake eaters, and as a C-suite guy you need to do this fast and certainly before year end. The best and most reliable method of leaving more for yourself is by sacking all the employees. If this was practical I would heartily recommend this, but the next best thing is to start re-structuring, managing people out and offering redundancy. This is the only way you will be able to report exceptional or in-line year end profits and drive the value of your own compensation package up when the shares peak in response to the great results you will deliver in the 4th Quarter, even though trading conditions were very challenging. Hell your paper might become so highly rated you could even take over a competitor and sack everyone in that firm too.Happy days!.
Basic Principles
Get the employees off the payroll fast, do it now so you can take a one-off exceptional for severance costs in Q4 if you have to pay any.No company wants to pay out free money. It's just wrong.Remember you will not have to pay severance in the following circumstances:
1. Encourage Natural Attrition : People who were going to leave anyway can be encouraged to leave by poor performance reviews or my preferred method, 'reverse head-hunting'. Retain headhunters to call the people you need to get rid of and send them on to another firm. This plays to the current employees vanity and self-esteem.Voila you don't have to pay a bonus or redundancy. I suggest a tiered fee structure agreement , not per employee. E.g. if the headhunter can get rid of between 1-50 , pay them X dollars, 50-100 Y dollars. This really depends on the size of your company. Recruitment companies always love to do deals which guarantee certainty of cashflow and earnings visibility.They work primarily on commission remember.
2. The Set-Up:Try to set-up more senior employees up so you can accuse them of gross negligence or misconduct. This usually invalidates the employment contract. This is best done through scrutinising expense claims and implying inappropriate claims ( it doesn't have to be true) ,which is tantamount to accusing them of theft. Or there are other alternatives -get them involved in a harassment claim. Because these employees tend to be older and longer serving this is the best method.They will probably agree to leave quietly and with a small pay-off in return for a good reference so they can find work again to pay the 2nd mortgage and the school fees.Do consider the legal position, the company maybe exposed to an unfair dismissal claim ( the upside for the firm is that in the UK this is capped at around 59K so it's cheaper than paying out a 300K bonus). If you are going to go down this road to get rid of the middle managers- it's best to pick ones that have been with the firm less than a year. The law as it stands only gives you locus standi to bring an unfair dismissal claim if you have more than a year's service. For futher details consult HR & legal.
3.Encourage people to take sabbaticals: Talk to the high-fliers,they generally cost more and have high compensation expectations. Explain how you value all their hard work, why not take a sabbatical as a thanks for all the contribution they have made in making the firm no.1/the best etc. Guarantee them their job back in 6 months. Then while they are away contemplating the meaning of life in The Gambia, at year end give them nothing, piss them off so they don't come back. If they have any self respect they will quit thereby saving you a lot of cash in unpaid severance.If the market goes down the pan next year you can always replace them with someone cheaper and more desperate. It's a short term outlook business, the high fliers should know that. Market conditions are constantly changing.
4.Decimation: If I was honest this is one of my personal favourites. Get a list of all the employees by division, get some interns on work placements ( should be free), ask them to highlight every tenth name, and then make the unfortunate fellow redundant. This always appeals to my sense of capriciousness, it's simple too.The the only draw back is sometimes you end up losing employees who are quite attractive, good to play golf/Bridge/table football with or ones who had a good store of jokes. Sadly sacrifices have to be made. Everyone is replacable.
Other ways of shaving Costs
- Close any restaurant facilities - not because this will save much money but it will make life inconvenient for the workers, if they have half a brain they will realise you simply do not care about their comfort. Since you send the MBA out to get all your coffee why do you care?
- Get rid of gym memberships, dry cleaning,concierge services, business class flights, biscuits, flowers, newspapers. Ask people to bring their own pens, stop the the printing of new business cards,freeze all training ( except legally required stuff e.g Health and safety)these are all small strategies that could throw a lot of people who were thinking of leaving into accelerating their departure. You need to make them feel unloved. It's not a hippy commune. It's a business.
- Pensions- immediately reduce any matching payments into defined contribution schemes. Send out a complicated but dull memo explaining what is happening, but on the same day as announcing other things like some voluntary redundancies. No one will read it. As a C-suite member if you are in any self respecting company you should be Ok.You're on final salary remember.
- Announce cancellation of the Christmas party NOW. This always upsets people. Tell them the company values work place diversity and as a result has decided to not elevate any one religous festival ahead of others.
Conclusion
My advice seems counter-intuitive in these boom times ,but if as a C-suite member you want to profit from this great bull market, you need to starting putting the wheels in motion to get the morons off the payroll. Don't be too harsh though,have a heart, it's only money.
RB
Tuesday, September 19, 2006
U S extraterritoriality: Balls to Sarbox!!!
In the good old days before the UK became a remote US state, it used to be that Parliament was sovereign, and was the ultimate law maker. Increasingly this role in the international finance scene is being performed by the US legislature. Although we are not US citizens in the fully fledged sense ( cheap petrol, trips to Vegas, dunkin' doughnuts) financial services personnel are increasingly subject to US law. This is called extraterritoriality. Let me explain. Imagine the US passes a law that says it is a criminal offence to fart in the US. That's fine if you live in the US, you commit the offence of farting in the US. Now imagine that the same law is extended to make farting by persons working in US listed companies or companies with US ties abroad. So if you fart in the UK and do not comply with US flatulence laws you maybe committing an offence for which you will could be extradited or prosecuted in the US, even though you farted in London UK, not New London Connecticut. Strange isn't it. The truly smart readers will have realised by now that if you substitute the example of Sarbox for farting the whole thing becomes much clearer. The issue of extraterritoriality is more important now than ever, for example what happens if Nasdaq does eventually take over the LSE. Will UK companies have to comply with US listing and regulatory and compliance requirements. The answer seemed to come from Ed Balls, the economic secretary to the the Treasury ( UK that is). The proposed legislation effectively ring fences the LSE from the effects of US compliance should it be taken over. This seems very sensible, given that one of the main and presumably
unintended effects of Sarbox has been to put off companies listing in the US, instead companies have listed on non-US exchanges like AIM. The response from Harvey Pitt a former Head of the SEC was he couldn't understand why Balls has gone down this road,
he told the Financial Times: "What we need now is not unilateral turf-protecting activity but really collaborative discussions between regulators to figure out what the right solutions are to protect investors."
The fact he doesn't get it is the problem.Is he a bit thick ? Exporting legislation in a seemingly benign manner is the most insidious form of extraterritoriality, we need world class solutions but Sarbox heavy handedness was never the answer, nor is it business friendly, it's true we do need to protect investors, but lets just recap. Sarbanes- Oxley came as response to a number of firms involved in misdemeanours on an epic scale. Here are some of them - Enron, Worldcom, Global Crossing, HealthSouth, Tyco and the banks involved were Citibank, JP Morgan,Merrill Lynch and others. Last time I looked they were all US firms. So why Sarbox needs to be exported is anyone's guess. It came about in response to the poor corporate governance in America, not the rest of the world. It is a was a poor piece of legislation to begin with. The thing Mr Pitt doesn't get is corruption is part of the capitalist process, it's at the heart of the US corporate framework. Firms are still fiddling stock options accounting, faking inventory, re-stating financial statements. No accounting information coming out of any large corporate will ever be reliable. We can't trust the auditors or the advisors either. They themselves have either colluded in cooking the books ( Andersen's) or are being investigated for their own lack of ethical conduct in regard to things like tax avoidance scams ( KPMG , E&Y ).The Lawyers were at it too. So what do you do? I have no idea but more corporate governance and tighter internal controls are not the answer. If all the information is wrong and faked to begin with, having tighter internal controls is like auditing the contents of your dustbin. Now you know exactly what the rubbish is made up of, but it's still rubbish.
unintended effects of Sarbox has been to put off companies listing in the US, instead companies have listed on non-US exchanges like AIM. The response from Harvey Pitt a former Head of the SEC was he couldn't understand why Balls has gone down this road,
he told the Financial Times: "What we need now is not unilateral turf-protecting activity but really collaborative discussions between regulators to figure out what the right solutions are to protect investors."
The fact he doesn't get it is the problem.Is he a bit thick ? Exporting legislation in a seemingly benign manner is the most insidious form of extraterritoriality, we need world class solutions but Sarbox heavy handedness was never the answer, nor is it business friendly, it's true we do need to protect investors, but lets just recap. Sarbanes- Oxley came as response to a number of firms involved in misdemeanours on an epic scale. Here are some of them - Enron, Worldcom, Global Crossing, HealthSouth, Tyco and the banks involved were Citibank, JP Morgan,Merrill Lynch and others. Last time I looked they were all US firms. So why Sarbox needs to be exported is anyone's guess. It came about in response to the poor corporate governance in America, not the rest of the world. It is a was a poor piece of legislation to begin with. The thing Mr Pitt doesn't get is corruption is part of the capitalist process, it's at the heart of the US corporate framework. Firms are still fiddling stock options accounting, faking inventory, re-stating financial statements. No accounting information coming out of any large corporate will ever be reliable. We can't trust the auditors or the advisors either. They themselves have either colluded in cooking the books ( Andersen's) or are being investigated for their own lack of ethical conduct in regard to things like tax avoidance scams ( KPMG , E&Y ).The Lawyers were at it too. So what do you do? I have no idea but more corporate governance and tighter internal controls are not the answer. If all the information is wrong and faked to begin with, having tighter internal controls is like auditing the contents of your dustbin. Now you know exactly what the rubbish is made up of, but it's still rubbish.
Monday, September 18, 2006
Diversity matters? The Minority Report.
My summer sojourn is now over. Back to work then, in a manner of speaking. My first post is regarding a matter that seems to be close to everyone's hearts. Been on any Diversity training lately? I have. It's pretty nonsensical and another little timewaster. There seems to be an a priori assumption that Diversity is good and indeed desirable in financial services companies, especially banks. The FT has recently reported that minorities are under represented in banks and financial services companies and UK boardrooms. So lets examine the logic of diversity from a financial perspective, lets apply investment principles. Since I constantly hear that people are an 'investment', or they are our biggest 'investment'. Where better than to start with actuarial methods, Pegler's Principles of Investment seems like a good tool.
1. Maximising Returns: Does having a diverse work force maximise returns, do you actually make more money as a business. Diversity training costs, recruitment processes that conform to affirmative action procedures cost, seeking a more effective way of recruiting minorities costs. Does having a adequate measure of minorities in your company mean you will get more business, maybe so in the cases of public bodies seeking goods and services who will give preference to companies which meet diversity targets. Is that necessarily good for the customer or the supplier. If I have two widget makers to choose from and one of them makes excellent widgets but does not have a diverse workforce whereas the second makes a competent product which will last half as long, but has met their diversity targets, should I use the latter supplier. Is that good economic sense for my business? In the end you will be keeping an uncompetitive and inefficient company afloat, which means poor allocation of capital in the economy as a whole. On the other hand minorities may work harder, but if you are already comfortable with the margins your business makes - do you want to go to all the hassle of trying to actively meet diversity targets? I am at a loss to find any non-anecdotal evidence that diversity maximises business returns.
2. Diversification reduces risk: How?, the more minorities in the workforce means more potential for misunderstanding and general cultural conflict. If my religious belief makes me frown on the making of profit from usury, then perhaps I shouldn't be in a company that arranges loans to companies. There is more risk of litigation due to cultural sensitivities, there is more likely a non-alignment of interest in business as a whole. You may end up with distinct sub-cultures within the business that is not helpful when it comes to achieving shared objectives.(Profit).
3.Take account of future trends: It may be that your business seeks to position itself as a provider of choice for new markets, and new ethnic and demographic groups. For example many banks are expanding their private wealth management offering in Asia to cater to the newly rich. It may therefore make sense to employ people with the same demographic in that region to face customers, but this is a response to a business need. This is not diversity as an end in itself.
4.Orienting Investment towards economically and socially desirable ends: This may be the reason why companies are driving towards diversity( aside from the legal aspects such as anti-discrimination legislation). That said, this cannot be the overriding business principle it is merely one of the four principles set out by Pegler.
In the end the case for corporate diversity as an end in itself is extremely flimsy. Unlike other types of businesses, banks should be considered a sui generis type of business.The overriding investment principle for these businesses is to make as much money as possible, without taking into account moral or ethical considerations, as a shareholder , as long as the activity is not illegal why do I care whether my business meets diversity guidelines or not. Businesses are legal persons, there is no moral imperative. The issue of diversity is sadly linked to the myth of merit. In banks almost every person is fungible with any one else, from the CEO down to the contract cleaner.Try firing either and see if your business blows up. I doubt it. Merit is a meretricious concept. Who wants to employ people based on merit, especially in finance, there is just no need.The idea itself is absurd, especially in banks, 95% or more of the roles do not need any 'real' skills. If you have basic literacy and numeracy skills you should be OK to perform any role in any bank.They are unskilled jobs essentially with a professional veneer. You may be an analyst, you may have CFA, but the point is it's totally unnecessary, especially if you are an analyst at HSBC, your work has already been deemed worthless.
Banks are extremely dry places to work, it would be better if people were hired on their ability to amuse , attractiveness and general ability to make good small talk. These are the skills that get people through the working day. Diversity and merit should have no special place in the recruitment process. I am not sure it is even desirable. I personally like myself best and like to go around with people who are mostly like me, why would I want to change that.
RB
1. Maximising Returns: Does having a diverse work force maximise returns, do you actually make more money as a business. Diversity training costs, recruitment processes that conform to affirmative action procedures cost, seeking a more effective way of recruiting minorities costs. Does having a adequate measure of minorities in your company mean you will get more business, maybe so in the cases of public bodies seeking goods and services who will give preference to companies which meet diversity targets. Is that necessarily good for the customer or the supplier. If I have two widget makers to choose from and one of them makes excellent widgets but does not have a diverse workforce whereas the second makes a competent product which will last half as long, but has met their diversity targets, should I use the latter supplier. Is that good economic sense for my business? In the end you will be keeping an uncompetitive and inefficient company afloat, which means poor allocation of capital in the economy as a whole. On the other hand minorities may work harder, but if you are already comfortable with the margins your business makes - do you want to go to all the hassle of trying to actively meet diversity targets? I am at a loss to find any non-anecdotal evidence that diversity maximises business returns.
2. Diversification reduces risk: How?, the more minorities in the workforce means more potential for misunderstanding and general cultural conflict. If my religious belief makes me frown on the making of profit from usury, then perhaps I shouldn't be in a company that arranges loans to companies. There is more risk of litigation due to cultural sensitivities, there is more likely a non-alignment of interest in business as a whole. You may end up with distinct sub-cultures within the business that is not helpful when it comes to achieving shared objectives.(Profit).
3.Take account of future trends: It may be that your business seeks to position itself as a provider of choice for new markets, and new ethnic and demographic groups. For example many banks are expanding their private wealth management offering in Asia to cater to the newly rich. It may therefore make sense to employ people with the same demographic in that region to face customers, but this is a response to a business need. This is not diversity as an end in itself.
4.Orienting Investment towards economically and socially desirable ends: This may be the reason why companies are driving towards diversity( aside from the legal aspects such as anti-discrimination legislation). That said, this cannot be the overriding business principle it is merely one of the four principles set out by Pegler.
In the end the case for corporate diversity as an end in itself is extremely flimsy. Unlike other types of businesses, banks should be considered a sui generis type of business.The overriding investment principle for these businesses is to make as much money as possible, without taking into account moral or ethical considerations, as a shareholder , as long as the activity is not illegal why do I care whether my business meets diversity guidelines or not. Businesses are legal persons, there is no moral imperative. The issue of diversity is sadly linked to the myth of merit. In banks almost every person is fungible with any one else, from the CEO down to the contract cleaner.Try firing either and see if your business blows up. I doubt it. Merit is a meretricious concept. Who wants to employ people based on merit, especially in finance, there is just no need.The idea itself is absurd, especially in banks, 95% or more of the roles do not need any 'real' skills. If you have basic literacy and numeracy skills you should be OK to perform any role in any bank.They are unskilled jobs essentially with a professional veneer. You may be an analyst, you may have CFA, but the point is it's totally unnecessary, especially if you are an analyst at HSBC, your work has already been deemed worthless.
Banks are extremely dry places to work, it would be better if people were hired on their ability to amuse , attractiveness and general ability to make good small talk. These are the skills that get people through the working day. Diversity and merit should have no special place in the recruitment process. I am not sure it is even desirable. I personally like myself best and like to go around with people who are mostly like me, why would I want to change that.
RB
