Dec 12, 2013

    China's dads, kids and JPMorgan

    INVESTMENT banking is a business of relationships.

    And last weekend, there was a New York Times article about how JPMorgan Chase hired the children of Chinese officials in order to win business from Chinese state-owned companies.

    The best part of the story may be this:

    "JPMorgan also briefly kept spreadsheets... In one column, (it) listed job candidates; in another, the bank recorded its 'track record' for winning business from companies tied to those candidates... JPMorgan has explained that it did not connect revenue to the 'Sons and Daughters' programme. Instead, the bank has said, the spreadsheets were meant to assess whether JPMorgan bankers, in hopes of securing full-time jobs for some interns in the programme, had exaggerated the revenue received from state-owned companies."

    This was not JPMorgan saying: "We need to win business from Chinese state-owned companies, so hire their managers' children."

    This was JPMorgan bankers saying to themselves: "I want to hire some well-connected, but incompetent, children, so I'm going to tell my managers that doing so will win us business."

    The managers got suspicious and checked up on those claims because, of course, bankers will exaggerate the value of their relationships.

    JPMorgan wasn't hosing Chinese companies through bribery-by-nepotism.

    JPMorgan bankers were hosing JPMorgan through nepotism-for-(failed)-bribery.

    The spreadsheets' rationale suggests that it wasn't as simple as "you give me an initial-public-offering mandate and I give your son a lucrative do-nothing job".

    It was more the old-fashioned, regular-way sort of nepotism: "Your son is a great kid, I am going to give him a job, let's stay in touch", that sort of thing. Y'know, relationships.

    None of this makes anything better if you believe that nepotism has no place in investment banking but, haha, come on, why would you believe that, that's nuts.

    Nepotism has a proud and prominent place in investment banking: In a business of relationships, you might as well hire people who were born with good relationships. The alternative, of developing relationships through financial analyses and golf, is slow and error-prone.

    Anyway, this is all very sordid, but it ends with the sad story of Mr Zhang Rong, who quit JPMorgan in December 2011 when he realised the bank was just using him for his relationships.

    On an overnight flight from Hong Kong to the United States, he drafted a resignation letter that lamented how "all of my efforts seemed meaningless to you and you tend to judge me solely on the relation part of me".

    He said he was quitting because he could no longer "live under the shadow of my father". His father, he indicated, had ties to the China Post Group, which runs the Chinese postal service and other subsidiaries.

    I guess we should feel bad for Mr Zhang, who wanted to be valued for his abilities and his efforts, rather than for his connections. Which is a reasonable-enough desire. But, of course, he took - and then left - a job in an industry that is all about relationships.

    "Efforts" are not really what investment banks are looking for, except insofar as when those efforts lead to relationships, and those relationships lead to money.

    If you've got the relationships already, the efforts are secondary.