Cash in on MBA talent

January 5, 2001

Business schools hold the key to success for Britain's investment community, argues Philip Augar.

During the late 1990s, the City's investment banks experienced one of those wholesale collapses in which British industry specialises. This was an unusual decline because it involved a service rather than a manufacturing industry. The publicity has been light. So far there have been few job losses and even when the redundancies inevitably come, formerly well-paid investment bankers are hardly likely to get much public sympathy. However, the sale of all of the United Kingdom's leading investment banks to American or continental firms poses long-term questions about the future of the City of London and financial services in the UK.

The underlying cause of the decline was bad management. Investment banks are increasingly recognising the crucial importance of management education for their staff, and the university sector has a key role to play in meeting this need. Universities and investment banks appear to be like shy teenagers at a dance: in the same room, listening to the same sounds, but not yet dancing to the music.

The pre-1990s City was the domain of the gentleman capitalist: public-school educated, products of Oxbridge, if they were graduates at all, male, not very hard-working in the context of the international business world, with the air of the gifted amateur. Management was not regarded as an important activity.

In the 1990s this began to change. The public-school Oxbridge brigade was supplemented by recruits from a wider educational base. Given the evidence of scandal, losses and business failures, not even the City could pretend that the previous regime had worked well, and a new breed of managers began to come forward.

Transfers from the New York offices of the new owners of the investment banks introduced sound management skills and a more rigorous work ethic. However, formal management training is still only in its infancy. Human capital is recognised to be an even more valuable resource than financial capital, and consequently there is an acknowledged need for industry-focused management education in the City. This can best be met by university management schools.

There are three specific initiatives that could make a difference. First, the City should make much more effort to recruit MBA graduates. The employers' milk round takes place in winter when the MBA programmes have only just started, which is a disincentive for students to attend. There is a similar issue of timing over the City's training programmes for graduate entrants, which start in August and September when the MBA students are still completing their degrees.

In the UK, MBA students typically have years of practical experience and represent an attractive pool of talent that the investment banks are by and large missing.

Second, the banks should consider sending their graduate intake on an MBA programme or equivalent from day one. Most graduate recruits face just a short induction programme before on-the-job training. Participation on an MBA programme would give them a chance to mature, to acquire business and managerial skills, and to begin their careers with a sound theoretical base.

Third, the business schools should develop specialised MBAs for the financial services sector with a focus not just on technical expertise, but also on softer management skills. Masters courses in finance and conventional MBAs do not address how to manage large numbers of highly paid, mobile, bright and individualistic professionals.

According to my 20-year experience in the industry, Americans do better because of superior management. The origins of that are partly historical - investment banking as a profession is 50 years older in the United States than in the UK - but it is also down to a different approach to management education - summed up by James Hanbury, the doyen of Wall Street's investment banking analysts. "The top American firms have been hiring loads of the best and the brightest from business schools for a long time. They have pulled in an extraordinary amount of talent over 25 years and kept and nurtured and trained them until they have taken over the firms. That gave the investment banks great management in depth."

Management in depth is what the British firms lacked and will continue to lack until they become partners with universities and business schools to provide managerial skills and culture. Get dancing.

Philip Augar ran the NatWest and Schroders equities businesses, 1990-2000, and is a visiting fellow at Cranfield School of Management. His book, The Death of Gentlemanly Capitalism: The Rise and Fall of London's Investment Banks , is published by Penguin, £20.00.

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