If you've met many people who work on Wall Street, then you've probably noticed a trend: almost all of them come from colleges like Harvard, Yale, Princeton, and Penn. Super-elite schools account for the vast majority of hires at big banks. A new paper by Kellogg management professor Lauren Rivera examines the common the track from Ivy to investment bank. John Carney of CNBC wonders why firms behave in this way and brainstorms a few possible explanations. As someone who worked on Wall Street, I don't find the phenomenon particularly mysterious.
Smart? Yes. Geniuses? No.
Here's a part of Rivera's abstract:
I find that educational credentials were the most common criteria employers used to solicit and screen resumes. However, it was not the content of education that elite employers valued but rather its prestige. Employers privileged candidates who possessed a super-elite (e.g., top 5) university affiliation and attributed superior cognitive, cultural, and moral qualities to candidates who had been admitted to such an institution, regardless of their actual performance once there.
This might seem counterintuitive. Aren't these firms after the smartest candidates they can find? And if so, why don't they care more about grades and educational endeavors once candidates hit college? After all, high school was a long ways off by the time these students are interviewing for Wall Street Jobs, and that's all their admittance to college was based on.
In reality, however, these firms don't care if they find the very smartest people. They're only looking for people who are smart enough. Let's face it: most finance jobs aren't rocket science. Unless you're a quant -- in which case a PhD in math, physics, or computer science is often necessary -- the hardest math you'll ever see on Wall Street you learned in high school. Beyond that, the ability to understand concepts relatively quickly is all you need, and if you got into a top school then your intellectual aptitude is sufficient for that.
You could even take this a step further by employing some cost-benefit analysis. If outsourcing the search for intellectual adequateness to college admissions offices manages to provide the caliber of candidates that satisfies Wall Street, why would the industry bother spending more time trying to find smarter applicants? From Rivera's paper:
An investment banker (white, female) expressed a sentiment that was common across firms, "The best kid in the country may be at like Bowling Green, right. But to go to Bowling Green, interview 20 kids just to find that one needle in the haystack doesn't make sense, when you can go to Harvard it's like 30 kids that are all super qualified and great."
The cost of spending additional time isn't worth the benefit to Wall Street. As this banker says, there's no point looking for that ideal candidate from a lesser school when it's easy to find an adequate one very easily from a top-tier school. They're not trying to cure cancer; they're mostly just selling stocks and bonds to large institutional investors.
It's 'Fit' That Really Matters
Instead of educational ambition and aptitude, the paper's abstract continues by explaining what's more important after the initial screening process:
However, attendance at a super-elite university was insufficient for success in resume screens. Importing the logic of elite university admissions, firms performed a secondary resume screen on the status and intensity of candidates' extracurricular accomplishments and leisure pursuits.
That last sentence holds the key. Anyone who has gone through investment banking interviews has probably heard the term "fit." That's essentially jargon for how much the interviewer likes you. And that has nothing to do with your grade in art history or quantum mechanics. It has to do with whether you and the interviewer both played varsity sports in college, were members of the same fraternity or sorority, or love sailing. After you're deemed smart enough to handle the work -- which is a pretty quick determination -- recruiters want to know how well you'll fold into the firm's culture.
This might seem superficial, because it is. But it's also practical. This potential hire will be working on a banking team for somewhere between 60 to 100 hours per week. If the candidate has nothing in common with others at the firm, those hours will be very dull and move very slowly.
Moreover, hires need to be able to work well with clients. And since corporate executives and high net worth individuals generally make up those clients, a certain sort of person is often more ideal in such situations. You can't take a brilliant guy with a degree in chemistry but no interest in sports on a client-meeting that includes a golf trip, but you can take a middle-of-the-pack political science major who has played golf in Palm Beach with his parents since he was five-years-old.
Does this reinforce a sort of "old boys club" feel to Wall Street? Of course it does: that's the whole point. These firms hire people who are like themselves, because that's the type who will excel in the industry. Are they smart? They're generally of above average intelligence. But if the smartest people were really all on Wall Street, we'd have a lot of trouble as a society inventing new wonder drugs, dreaming up tech device innovations, and writing brilliant novels. Luckily, there are plenty of jobs left over in labs, at universities, and at engineering firms for the real brainiacs who don't have the right cultural background to fit into Wall Street's mold.