With pink slips fluttering on Wall Street and markets reeling from debt crises in Europe and the U.S., finance professionals are avoiding risky decisions, validating poor ideas to win favor with managers, jumping to more stable firms and steering clear of collaborative projects that could reflect well on co-workers – all in hope of surviving the next round of layoffs – according to bankers, finance consultants and recruiters.
“There’s a lot of people who have been on edge for the last three or four years, so burnout is a factor too,” said Alex Jakobson, a managing director at RogenSi, a consultancy based in Australia and New York that advises sales staff at several Wall Street firms.
Indeed, there is much for finance professionals to fear. A number of investment banks have cut employees in recent weeks as trading volumes slipped, in some cases to their lowest point in years. Many analysts believe Wall Street is in store for a series of large layoffs in the coming weeks. Richard Stein, a partner in Toronto-based executive search firm Caldwell Partners, said the tally of job cuts might hit 80,000 by the end of the year.
Those kinds of forecasts aren’t lost on Street staffers. Scorelogix LLC, a Delaware-based analytics company, compiles a job-security score based on economic indicators and proprietary layoff information. In bullish markets, the “fear index” for finance and insurance hovers around 140; in April it was at 51.7 and hasn’t been over 100 since the start of the crisis, implying that job-security in the industry has stayed relatively low since the subprime mortgage loan market imploded.
The erosion of teamwork and productivity that comes from layoff jitters is subtle and slow – but destructive. Consider Goldman Sachs, which is in the process of cutting about 1,000 workers, in part, because of poor trading results. An investment banker at the firm, who spoke on a condition of anonymity, said the sales and trading staff has been reluctant to offer attractive prices to corporate clients selling big blocks of stock.
Favorable prices on block trades help bankers win future underwriting business with corporate clients. But Goldman’s trading desks, facing layoffs, don’t want to take any more losses, even on trades that could win the firm lucrative business in the future.
Goldman declined to comment.
Batia Wiesenfeld, a management professor at New York University’s Stern School of Business, said banks and brokerages tend to let months pass between when they announce layoffs and when they cut workers, a tedious period that cultivates brain-drain.
“As soon as there is a spectre of downsizing, it isn’t fun going to work and your best people get out,” Wiesenfeld said. “It takes enormous effort on the part of management and a real commitment to turn around that vicious cycle.”
Take the investment bank at UBS, for instance. At least 13 senior U.S. professionals defected from the unit in the first half of the year. In a July 27 earnings release, the company announced that it would proceed with an undisclosed number of layoffs that would result in “significant restructuring charges.” The Swiss firm’s pretax investment bank profit slid 71% from the year-earlier period.
Peter Cappelli, director of the Center for Human Resources at University of Pennsylvania’s Wharton School, noted that employee loyalty typically climbs during economic downturns, as workers gain appreciation for their status. However, the opposite has happened since the recent recession, which officially ended in June 2009, he said.
As companies cut benefits and heaped more responsibilities onto incumbent employees, Wall Street folks have tuned out or “froze up,” according to Cappelli, who cited studies on worker engagement.
“Wall Street is pretty bad” at downsizing, Cappelli said, “and I don’t think they’ve become any more sophisticated.”
Credit Suisse, which said it would cut about 2,000 jobs in coming weeks, said it tries to keep rumors in check by facilitating face-time between junior and senior employees. Some of its most promising junior employees dine with the executive board members three times a year.
“It helps to boost morale and recognizes individuals on an ongoing basis,” said spokeswoman Karen Laureano-Rikardsen.
Goldman, when it cuts workers beyond its annual culling of underperformers, tries to do so quickly and thoroughly to refocus surviving employees on their work, according to David Schwartz, former head of human relations for the firm’s investment bank in Europe.
“Still, even in a firm where people are professional as they are at Goldman, people do get distracted,” Schwartz said. “I’d walk onto a floor for a closed-door meeting with senior partners and the whole floor would stop working.” – Originally posted on FINS from the Wall Street Journal by Kyle Stock.
Want more career advice and news from FINS?