“Twenty years ago investment banking was de rigueur,” says Keima Ueno, who like many of his HBS peers left Wall Street for greener pastures, below. “But during the 2008 crisis, the bubble burst. The financial industry has lost its appeal. Now we see a shift to ‘entrepreneurial careers’.”
The allure of Silicon Valley, where bearded hipsters are minting billion dollar fortunes, is eclipsing that of investment banks, which are under pressure to cut costs and reign in corporate excess.
After a steady talent drain away from Wall Street since Lehman collapsed in 2008, the share of Harvard students flocking to investment banks fell to a fresh low of 5% last year. That’s down from about 13% in 2007.
Meanwhile, Bay Area technology companies have been snapping up swathes of elite MBAs to carry out the visions of their renegade founders. Last year, 20% of Harvard’s class poured into tech, up from just 7% in 2007 — and many of the outfits are in San Francisco’s Bay Area, says Kristen Fitzpatrick, the school’s director of careers.
“Pre-financial crisis you might have gotten the news that someone declined an offer to go and work for a different investment bank,” says Sam Price, who recruits MBAs for Nomura. “Now we see people going to consultancies and millennials to ‘cool start-ups’. It’s definitely more competitive.”
Pay plays a significant role here, say careers directors. They say tech businesses can offer better compensation than finance through equity stakes and other perks — from ping pong tables and “nap pods” to free food and even fertility treatments.
“The tech industry is part of a cycle and, right now, the market is very strong — the valuations have been great for the last three years, and MBAs are very interested,” says Maeve Richard, director of careers at Stanford’s Graduate School of Business in California.
Meanwhile, bankers’ salaries have come under pressure as revenue has fallen and regulators have clamped down on excessive rewards. The average compensation for a Goldman Sachs employee in 2015 was $344,511, down from $661,490 in 2007.
It’s not just falling salaries that have curtailed banks’ appeal. Lavish perks have been reigned in, notes Keima, who blogged on life at Harvard: “Recently I talked with an old colleague at Morgan Stanley; he said the company doesn’t reimburse $40 for dinner anymore.” That’s a far cry from Keima’s days on the Street: “My bosses used to spend money like water. Ordering wine, they didn’t even bother with the menu, but just said: ‘The most expensive one’.”
While Harvard’s luminaries include JPMorgan Chase CEO Jamie Dimon and Goldman’s Lloyd Blankfein, today’s rising stars idolize minted tech leaders like Elon Musk, the co-founder of PayPal, Space X and Tesla Motors. Elon is worth about $13 billion, if you believe Forbes. Jamie and Lloyd, meanwhile, are worth a combined $2.2 billion.
These rich rewards are creating entrepreneurs too, who are hoping to strike gold — think Mark Zuckerberg, who, before dropping out of Harvard, started Facebook from his dorm room.
Twenty-four percent of 157 “unicorn” start-ups valued at $1 billion or more were founded by MBAs, according to a study by David Fairbank.
He used his Harard MBA to land a job in the Bay Area at Lyft, the ride-hailing app business. What often attracts MBAs to tech outfits is the offer of more responsibility and rapid progression. “It was the environment and entrepreneurial spirit that excited me,” says Laura Cushing, left, who used to work at Bank of America Merrill Lynch but chose Amazon after enrolling at IESE, one of Europe’s top schools.
Sometimes, it’s the little things that help. “You can imagine how shocking it was for me to step into in a company where nobody judges you by your appearance or your suit or your tie,” says Angel Araujo Herrera, a HULT MBA who quit managing €95 million for a leading asset manager to join Google.
Elite school graduates also say they value a better work-life balance — a millennial mind-set that bank hiring managers have been struggling to cater to. It can’t help that a Bank of America intern died in 2013 after working for 72 hours straight.
“Young analysts work around the clock, sleeping only a few hours a week when they are handling multiple cross-border deals,” says Harvard’s Keima, who worked at Morgan Stanley M&A advisory services.
He notes the extreme work environment has become the butt of a joke during HBS case studies on investment banking, when MBAs have to handle real-life corporate quandaries.
“When a grad chooses this path they run the risk of being thought a fool, or perhaps becoming a cautionary tale or even a punchline.”
Banks admit there are negative perceptions of the industry but say applications remain strong. It’s worth noting that Goldman alone received 250,000 applications — 30,500 from MBAs — for summer jobs this year. Top banks typically hire just 2-3% of candidates.
“It’s not a secret that investment banking is a challenging career. But we’ve made sure there are opportunities to improve the work-life balance,” says Elle Connor, who handles MBA recruitment at Morgan Stanley. This summer, the investment bank started offering month-long paid sabbaticals to junior employees.
Other banks are fighting back too. Credit Suisse is encouraging European employees to take Friday night and Saturday morning off. UBS is telling bankers to set aside two hours a week for “personal business”. And JPMorgan has relaxed its dress code to “business casual”.
These measures may have helped banks’ regain some of their lost lustre. When Training the Street, a corporate education provider, surveyed 20 of the highest-ranked MBA programs in June, it found that one-quarter of MBAs still flocked to banks.
“While positions at hedge funds, private equity firms, and to some extent start-ups are highly coveted job posts, they are only available to a select few MBAs,” says Scott Rostan, founder and CEO of TTS.
But Wall Street seems unlikely to stem the MBA talent drain to Silicon Valley. For now, Google has replaced Goldman Sachs, if not in reality then at least symbolically.