Flying Donkey

Wednesday, August 09, 2006

Investment Banking - Sociopaths Wanted

Over the last few years I've had the (dis)pleasure of working with a lot of investment bankers. It seems to me there is one quality that is predominant in most of the bankers I've met - Sociopathic behaviour.

Wait...wait....before you start pounding on me, lets consider the psychology of a psychopath and some of the clearly visible behaviour exhibited by your friendly neighborhood investment banker.

1. SUPERFICIAL CHARM -- a tendency to be smooth, engaging, charming, and slick. Not in the least shy, self-conscious, or afraid to say anything. Indeed this trait is shared with salesmen and consultants...but read on.

2. GRANDIOSE SELF-WORTH -- a grossly inflated view of one's abilities and self-worth, self-assured, opinionated, cocky, a braggart. Bankers have the biggest egos of any professional on the planet. Consider this...they fight over the font size of their names on business correspondence. In US, a company filing for an IPO has to do a Red Herring(RH). The RH has the names of all the banks whether they be in a lead or co-manager or syndicate capacity. One of the biggest fights in the IPO process happens because the bankers can't agree on the font size and the placement of their banks name. No wonder they work 90 hours a week...they spend hours deciding the font size.

3. NEED FOR STIMULATION (PRONENESS TO BOREDOM) -- an excessive need for novel, thrilling, and exciting stimulation; taking chances and doing things that are risky. Often has low self-discipline in carrying tasks through to completion because he gets bored easily. In every roadshow meeting I've ever been to, the banker is always playing with his blackberry as opposed to paying attention to the meeting.

4. PATHOLOGICAL LYING -- can be moderate or high; in moderate form, and will be shrewd, crafty, cunning, sly, and clever (in extreme form, he will be deceptive, deceitful, underhanded, unscrupulous, manipulative, and dishonest). Never take a banker on his word. They will say just about anything to get you "pregnant'. Once you are far along in the process, there's not much you can do but play along with the bankers. We had our bankers tell us about market conditions and their pre-marketing of our IPO with investors, based on which we signed them on. Guess what...2 weeks after we signed, they came back with totally different terms from what we agreed on because "the market had changed." Make sure you communicate clear break-off points with the bankers before you sign them on. Most bankers will be difficult to peg down clearly, but if they say things like "market will tell us"...dump 'em.

5. CONNING AND MANIPULATIVENESS -- the use of deceit and deception to cheat, con, or defraud others for personal gain; distinguished from Item #4 in the degree to which exploitation and callous ruthlessness is present, as reflected in a lack of concern for the feelings and suffering of one's victims. Again, read the previous point. When I say thay will get you "pregnant"...I mean really pregnant. We spent a lot of money on the IPO filing and the roadshow etc, before the bankers started squeezing us on terms etc.

6. LACK OF REMORSE OR GUILT -- a lack of feelings or concern for the losses, pain, and suffering of victims; a tendency to be unconcerned, dispassionate, coldhearted, and unempathic. This item is usually demonstrated by a disdain for one's victims. Make sure you have two or more people on the call or whenever you talk to the bankers. One key word they like to use is "mis-communication". Keep notes of the conversations and send follow-up emails to clarify everything that was said. We had a banker promising us his participation in the IPO by committing to buy our shares (called market making in banking). When push came to shove, he claimed ignorance, but there had been 5 people in the meeting in which he made the promise, and so he took refuge behind "mis-communication" defence.

7. SHALLOW AFFECT -- emotional poverty or a limited range or depth of feelings; interpersonal coldness in spite of signs of open gregariousness. Investment bankers are the most fun people to hang out with when they want something out of you. Their expenses paid dinners are notorious in the business community. You'll be surprised how long it takes them to return calls once they have what they want. Again this trait is not uncommon in corporate world...bankers have simply perfected it.

8. CALLOUSNESS and LACK OF EMPATHY -- a lack of feelings toward people in general; cold, contemptuous, and inconsiderate. Read the previous point.

9. IMPULSIVITY -- the occurrence of behaviors that are unpremeditated and lack reflection or planning; inability to resist temptation, frustrations, and urges; a lack of deliberation without considering the consequences; foolhardy, rash, unpredictable, erratic, and reckless. Unlike almost every other professional in the corporate world, bankers have absolutely no planning skills. They are primarily "deal sharks" and are geared towards deal generation and consummation. Planning is of secondary importance to them and for the most part they are not too good at it. Time and time again we made changes to our SEC filing based on banker recommendations only to realize that the bankers had not really thought through things, making our job more difficult. Make sure you go through the thought process behind each recommendation and you evaluate the consequences.

10. IRRESPONSIBILITY -- repeated failure to fulfill or honor obligations and commitments; such as not paying bills, defaulting on loans, performing sloppy work, being absent or late to work, failing to honor contractual agreements. One thing we realized was that there is no contract out there worth the paper its written on when it comes to bankers. The agreements they sign with you are notoriously vague with tons of loopholes that allow them to escape without any liability. They simply will not sign an airtight agreement. So the most important thing in picking bankers is referrals. Try get referrals through people who the bankers can't afford to antagonize.

11. FAILURE TO ACCEPT RESPONSIBILITY FOR OWN ACTIONS -- a failure to accept responsibility for one's actions reflected in low conscientiousness, an absence of dutifulness, antagonistic manipulation, denial of responsibility, and an effort to manipulate others through this denial. Tough luck trying to point out the mistakes made by bankers. Its always the market conditions that are the fault or the lawyers or the management itself.

*Note: The traits of a sociopath were taken from a pyschology journal and also a website that I can't seem to recall. If you find these characteristics on some other website...consider that to be the original source.

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