They rely too much on credentialism in hiring:
It is odd that the soft firms, which market themselves to clients as being super-smart repositories of brainpower (of course this is largely a fiction; see point 3 above), would rely so heavily on university admissions committees. They effectively outsource a big chunk of due diligence on their most important investment (human capital) to a group of people whose judgement they somehow trust, but perhaps without detailed understanding. When I was on the faculty at Yale I knew people in admissions and it’s not clear to me that they were the best able to spot potential in 18 year olds. In studies of expert performance admissions people are less good at predicting UG GPA than a simple algorithm. (The “algorithm” is simply a weighted sum of SAT and HS GPA!)
I’m a lot less impressed by Ivy degrees than I’m supposed to be. And I think that the current occupant of the White House is a great example of why.
Wall Street is mostly “a good old boy network” where who you know is more important that what you didn’t learn at a so called “elite” university? I’m shocked, just shocked 🙂
Some thoughts regarding spotting potential in 18 year olds:
Some of the things I’ve read and some discussions with PhD buddies of mine suggest to me that you really cannot spot who is going to be the person who will produce, stand out, innovate, when in their 30’s, 40’s and 50’s, when they are 18 years old.
One book covered the general officer corps of the American Army in WWII. The idea was that during the interwar years, when these guys were lieutenants, captains, and majors, there was NOTHING about them both written and observed, that said they’d be anything special. Yet some of them turned out to be outstanding, creative, and skillful leaders in the war.
It’s certainly true that you can observe 18 years olds and notice who does the work, who seems to absorb things effortlessly, who might not get things very quickly but has the stick-to-itveness to keep at it until they do. But a lot more goes into whether or not they would be creative, productive hard science Phd’s (for example).
So I expect one does the best they can with grades and possibly temperament, extra-curricular stuff etc. But it’s a crapshoot.
Why wouldn’t they outsource such a serious potential liability? In theory “We hire Harvard grads” is just as significant a source of disparate impact as any other selection scheme; in practice invoking a name like Harvard is enough to pass the buck and keep you from getting sued.
Major US corporations used to use IQ tests in their hiring; today that would make you the subject of a discrimination lawsuit, and they no longer do. This is a very expensive proxy for that…
Picking winners from high school is not that difficult…without exception, the people I expected to excel from my graduating class did exactly that. It was never based on academics, heck it really wasn’t based on opportunity, it was based on motivation.
Sure, those who were motivated by something generally had better grades, but that motivation gave them a longer-term perspective and a specific methodology: giving 100% on every play during football practice and then staying after to do additional sprints or additional weight training; doing the JROTC drills every afternoon despite teasing from other classmates heading home after school to watch the Brady Bunch; CLEPping over 50 hours of college courses the summer after HS graduation in order to graduate college two years early. Those kids were driven, and their intensity was from inside and not just to satisfy the demands of their parents.
I guess the definition of insanity certainly applies to those college admissions teams that continue to rely on GPA and SAT/ACT scores year after year. Those methods are not necessarily wrong, but more schools should follow the example of the college sports programs and supplement their lists built from GPA and SAT/ACT scoring by actually talking with HS teachers and counselors to identify which kids are driven. Like HS coaches, teachers and counselors would evangelize those students with the skills to succeed in business, research, and professional arenas, etc.
I think the Last Starfighter had the best model to use for selecting Wall Street traders, but firms would have to get away from the country club mindset they have to use it.
Those kids were driven, and their intensity was from inside and not just to satisfy the demands of their parents.
Just remember, Mike Griffin was one of those.
Wall St.’s value to customers (and source of profits) is being a concentrated, liquid market. There’s no value to Wall St. to expansion, becuse that reduces their concentration. So they have to find a way to reduce the number of people they hire to just a few. Hiring only from half a dozen schools is one way to to do that.
Brock: Isn’t just… not making more jobs a way to do that?
It’s not like there’s some force making them otherwise hire a lot more people, that they have to “trick” by restricting hires to the big Ivies. (Especially because, of course, even those have so many graduates lying around that that would be an ineffective brake.)
The “We only hire Harvard grads” strategy is viable not just because of liability insurance, but because there are a lot of customers who expect funds to hire the best and the brightest. Degrees from well known schools are an adequate and cheap substitute for that.
I might add that the customers don’t know what the best and brightest are, but they have heard of these schools. Appearance over substance.
Its probably the old boys network more than anything. Investment banks hire from Ivy League schools because most of the managers doing the hiring are also alumni of those schools.
I just read a whole book on this, “Investment Banking: Institutions, Politics, and Law” (http://www.amazon.com/Investment-Banking-Institutions-Politics-ebook/dp/B000SBL7HQ/ref=sr_1_1?ie=UTF8&m=AG56TWVU5XWC2&s=digital-text&qid=1297223262&sr=8-1). The whole industry, like consulting generally, is based entirely on reputation and reputation is really, really hard to build. An investment bank’s whole job is to know secrets that they’re not allowed to tell and to be trusted with those secrets and not screw the people who aren’t allowed to know it. It’s not like company Y can go on Craig’s List and say, “we’d like to be acquired” or they’d lose all of their best people and be worth nothing. So, they go to an investment bank and the investment bank says, “we were just talking to a company, we can’t tell you who, and they’re looking for someone like you” and they go to company X and say, “we know someone that looks like this, but we can’t tell you who yet, and they want to be purchased, are you interested”. You can’t do that without a reputation, and the easiest way to build that reputation is to cash in on someone else’s reputation. This surprises me not at all.
Notice what they say about the “hard industries”; performance in those industries can be measured and boasted about. In the “soft industries”, you can’t.
Of course, I just noticed that this thread is 7 days old.