SG Cowen: New Recruits Notes

SG Cowen: New Recruits

Overview

• SG Cowen's recruiting director, Chip Rae, is managing the Super Saturday recruiting event where bankers decide on new associate hires.

• They need to narrow down four remaining candidates to two offers to meet their hiring goals.

Investment Banking Industry in 2001

• Consolidation: Widespread through acquisitions and partnerships.

• High-Margin Businesses: M&A and equities, but volatile.

• Fixed Income: More stable revenue in downturns.

• Integrated Banking Groups: Citigroup and JP Morgan Chase could leverage commercial banking capabilities to win investment banking business.

• Lending and Custody Businesses:

  • Some strategists believed lending was the future.

  • Custody business (holding/processing securities) was low-risk, fee-based, and offered regular client interaction.

• Declining Profits and Layoffs:

  • Several investment banks reported declining profits and cost-cutting measures.

  • Compensation was the biggest expense, averaging 50% of revenue; some firms had salary and bonus costs upwards of 60% in the late 1990s.

• Increased Scrutiny: Regulators and the public were concerned about conflicts of interest, especially with equity issues and research analysts.

• Competition for Talent: Investment banks competed with venture capital, private equity, hedge funds, consulting, and tech companies.

• Shift in Student Interest: Students showed renewed interest in established firms for job security.

• Recruiting Challenges: Banks had higher-than-expected recruiting yields amid slowing business and struggled with handling new recruits.

SG Cowen

• Acquisition: Société Générale (a French international bank) purchased Cowen and Company in July 1998.

• Société Générale: Founded in 1864, nationalized in 1945, and privatized in 1987, with over 430 billion in assets by December 2000.

• Rationale: Société Générale sought a U.S. investment banking foothold and considered Cowen the best cultural fit.

• Financial Performance: SG Cowen improved from a -75 million operating loss in 1999 to a 34 million operating profit in 2000.

• Cowen's Background: Started as a bond brokerage in 1918, known for research and equity sales/trading.

• SG Cowen's Focus: Boutique-sized firm (1,500 professionals) focused on emerging growth companies in health care and technology, leveraging equity research.

• Kim Fennebresque: CEO, viewed research as the "edge of a wedge" for attracting clients.

• Geographic Expansion: Concerns arose about employee isolation and resource access in smaller offices.

• Growth Strategy: Fennebresque emphasized industry focus and geographic expansion to Europe and Asia.

The Hiring Process

• Timing: Hiring decisions made in early winter/spring for associates starting in the summer.

• Associate Sources:

  • Analysts promoted after three years without business school.

  • Summer interns offered full-time positions.

• Recruiting:

  • Company presentations at "core business schools" (NYU, Chicago, Columbia, Cornell, Emory, USC, Washington University, Notre Dame, Berkeley).

  • Resumes accepted from noncore schools.

  • Informational interviews used to gauge candidate interest and provide information.

• Team Captains: Assigned to each school for consistent student contact; ideally, they are banking professionals and alumni.

• Gregg Schoenberg: Team captain at Cornell, SG Cowen's highest recruiting yield.

  • He aimed to improve SG Cowen's candidate quality and increase opportunities for Cornell grads on Wall Street.

  • He noted Cornell students demonstrate more initiative and focus.

  • Schoenberg emphasized that a pattern of success matters more than prior experience but candidates need to be realistic about their fit.

Rae's Strategy

• Target Schools: Shifted focus from top 10 schools to the next 15 in the top 25 to attract top-tier students.

• Rationale: SG Cowen could be a bigger player at schools like Emory and USC, attracting better students who are also more loyal.

• Company Presentation:

  • Addressed four key questions: who are we, what do we do, what distinguishes us, and what are the next steps.

  • Highlighted advantages of a boutique firm: less bureaucracy, faster career advancement, smaller deal teams, and more client exposure.

  • Emphasized informal interaction and Q&A with students.

  • Some team captains offered informational interviews to help prepare students.

• Recruiting Rewards: Recruiting included on performance reviews for year-end bonuses.

On-Campus Round

• Schedules: Open schedules (student sign-up) and closed schedules (SG Cowen selection).

• First Rounds: Interviewers identify candidates for Super Saturday.

• Interviewer Accountability: Interviewers are held responsible for candidate quality at Super Saturday.

• Assessment: Interviewers make detailed notes on resumes and evaluation sheets.

• Second Round: Narrowing the list to six candidates, with potential same-day interviews to select Super Saturday invitees.

• Interviewer Level: Associates or senior associates conduct first-round interviews to assess basic skills. Senior bankers focus on long-term potential at Super Saturday.

• Key Attributes: Long-term success stems from loving the work, teaching, selling, client service, and competition.

• Culture Fit: Assessed by asking about comfort with New York.

• HR Credibility: Chip Rae's banking background enhances HR's credibility.

Super Saturday

• Format: Begins Friday with dinner and cocktails, followed by Saturday interviews.

• CEO Involvement: Fennebresque speaks at dinner, impressing candidates.

• Interviews: Five half-hour sessions per candidate and interviewer.

• Decision Making: Thirty candidates and bankers participate. Bankers make the final decisions.

• Offers: Aim to make 20 offers for 15 acceptances, complementing summer associate and analyst promotions to reach a class of 30.

• Orientation: Successful candidates attend an orientation in April to meet banking groups.

• Hiring Meeting:

  • Bankers often disagree on candidates.

  • Rae builds consensus and ensures fair consideration.

Building a Culture through Hiring

• Firm-Oriented Behavior: Encourage bankers to prioritize the firm's needs over alma mater or individual group interests.

• Hiring Standards: Maintain standards and avoid lowering them to fill quotas.

• Decision-Making Questions:

  • "If you could only take one new associate to the CEO’s office with you, which one would it be?"

  • "If I can’t place her, she’s going to be yours, how do you feel about that?"

• Valuing Diverse Backgrounds: HR recognizes the value of people who take time to find their path.

Fennebresque's Philosophy

• Attracting the Right People: Seek individuals who love technology and emerging growth.

• Motivations: Discourage those driven by money or status; emphasize passion over skill.

• Culture's Importance: Culture is critical; First Boston influenced Fennebresque's view.

• Unified Culture: Use the Ellis Island metaphor to unite bankers from diverse firms.

• Support and Autonomy: Provide support and decision-making power to bankers.

• Internal Focus: Prioritize internal clients (employees) over external ones.

Hiring Criteria

• Formalization: Rae uses grid sheets to structure evaluations and voting, meeting resistance from some bankers.

• Bill Buchanan: Believes in self-starters over regimentation and values entrepreneurial experience and fit.

• Flexibility: Able to stretch for personality and sparkle, creating roles for promising hires.

• Human Element: Creativity and energy are key, especially in Equity Capital Markets (ECM).

Candidates for Hiring

Natalya Godlewska

• Background: Cornell MBA, finance degree from Eastern Europe, top GPA, graduate teaching assistant.

• Skills: Fluent in Russian, Polish, German, and some French. Worked for CommScan.

• Strengths: Strong finance background, analytical knowledge, understanding of financial markets, positive references.

• Weaknesses:

  • Some felt she might not fit culturally and was stiff.

  • Concern about her English proficiency.

• Support: Others defended her, citing her go-getter attitude and potential client appeal.

Martin Street

• Background: Wharton MBA, four years in the military, leadership experience (rescue operation in Bosnia).

• Strengths: Dynamic, confident, articulate, section president at Wharton, running club president, marathon runner.

• Concerns:

  • Limited business experience and late interest in SG Cowen.

  • Uncertainty about offer acceptance and possible offer leveraging against other firms.

Ken Goldstein

• Background: Berkeley MBA, five years at PricewaterhouseCoopers (PWC), rising to manager.

• Strengths: Positive references, top 5% performance at PWC.

• Concerns:

  • Married with two young children led to concerns about his willingness or ability to work long hours.

  • Worries about potential resentment from other associates and maturity affecting obedience.

Andy Sanchez

• Background: USC MBA, UCLA economics degree, successful entrepreneur (Kaplan-style tutoring business).

• Business: Served 4,000 students, $2 million in revenue, $400,000 in profits.

• Strengths: Enthusiastic, personable, well-informed, great networking skills.

• Concerns:

  • Low undergraduate GPA (2.8).

  • Business school GPA of 3.1 at a time when grade inflation at schools like USC was common.

  • Addressed concerns by citing high SAT/GMAT scores and needing to work to support himself and his brothers.

Decision Time

• Bankers struggled to decide among the final four candidates.

• Rae emphasized the importance of the hiring process.

Exhibits

• Exhibit 1: Sample pages from Rae's evaluation book (prior candidates).

• Exhibit 2: Associate evaluation form.

Overview

• SG Cowen's recruiting director, Chip Rae, manages the Super Saturday recruiting event where bankers decide on new associate hires.

• The task is to narrow down four remaining candidates to two offers to meet their established hiring goals, emphasizing careful selection to maintain the firm's culture and performance standards.

Investment Banking Industry in 2001

• Consolidation:

  • Widespread through acquisitions and partnerships, leading to larger, more diversified financial institutions.

  • This trend increased competition and the need for specialized skills.

• High-Margin Businesses:

  • M&A and equities were high-margin areas but subject to market volatility.

  • Banks sought to balance these with more stable revenue streams.

• Fixed Income:

  • Provided more stable revenue during economic downturns, offering a buffer against the cyclical nature of M&A and equities.

  • Critical for maintaining consistent profitability.

• Integrated Banking Groups:

  • Citigroup and JP Morgan Chase leveraged commercial banking capabilities to enhance their investment banking business.

  • This integration allowed for cross-selling of services and a broader client base.

• Lending and Custody Businesses:

  • Some strategists considered lending as the future growth area, providing steady income and client relationships.

  • Custody business (holding/processing securities) was low-risk, fee-based, and offered regular client interaction, making it an attractive stable revenue source.

• Declining Profits and Layoffs:

  • Several investment banks reported declining profits, leading to cost-cutting measures, including layoffs and reduced bonuses.

  • Compensation was the biggest expense, averaging 50% of revenue; some firms had salary and bonus costs upwards of 60% in the late 1990s, prompting scrutiny and adjustments.

• Increased Scrutiny:

  • Regulators and the public raised concerns about conflicts of interest, particularly with equity issues and research analysts.

  • Greater transparency and ethical standards were demanded.

• Competition for Talent:

  • Investment banks faced competition from venture capital, private equity, hedge funds, consulting, and tech companies for top talent.

  • This competition drove up compensation and required firms to offer compelling career prospects.

• Shift in Student Interest:

  • Students showed renewed interest in established firms for job security amid economic uncertainty.

  • This shift benefited traditional investment banks in their recruiting efforts.

• Recruiting Challenges:

  • Banks experienced higher-than-expected recruiting yields due to the slowing business environment.

  • Managing and integrating new recruits became more challenging.

SG Cowen

• Acquisition:

  • Société Générale (a French international bank) purchased Cowen and Company in July 1998 to expand its U.S. presence.

• Société Générale:

  • Founded in 1864, nationalized in 1945, and privatized in 1987, with over 430 billion in assets by December 2000, demonstrating its global financial strength.

• Rationale:

  • Société Générale sought a U.S. investment banking foothold and considered Cowen the best cultural fit for its strategic expansion.

• Financial Performance:

  • SG Cowen improved from a -75 million operating loss in 1999 to a 34 million operating profit in 2000, showcasing successful integration and strategic adjustments.

• Cowen's Background:

  • Started as a bond brokerage in 1918, known for research and equity sales/trading, building a strong reputation in financial markets.

• SG Cowen's Focus:

  • Boutique-sized firm (1,500 professionals) focused on emerging growth companies in health care and technology, leveraging equity research as a key differentiator.

• Kim Fennebresque:

  • CEO, viewed research as the "edge of a wedge" for attracting clients, emphasizing its strategic importance.

• Geographic Expansion:

  • Concerns arose about employee isolation and resource access in smaller offices as the firm expanded, requiring careful management of remote teams.

• Growth Strategy:

  • Fennebresque emphasized industry focus and geographic expansion to Europe and Asia, aligning with global market opportunities.

The Hiring Process

• Timing:

  • Hiring decisions are made in early winter/spring for associates starting in the summer, allowing ample time for onboarding and training.

• Associate Sources:

  • Analysts promoted after three years without business school, providing internal growth opportunities.

  • Summer interns offered full-time positions based on their performance and fit during the internship.

• Recruiting:

  • Company presentations at "core business schools" (NYU, Chicago, Columbia, Cornell, Emory, USC, Washington University, Notre Dame, Berkeley) to attract top talent.

  • Resumes accepted from noncore schools to broaden the candidate pool.

  • Informational interviews used to gauge candidate interest and provide information about SG Cowen and the industry.

• Team Captains:

  • Assigned to each school for consistent student contact; ideally, they are banking professionals and alumni, providing valuable insights and guidance.

• Gregg Schoenberg:

  • Team captain at Cornell, SG Cowen's highest recruiting yield, demonstrating the effectiveness of targeted recruiting strategies.

  • He aimed to improve SG Cowen's candidate quality and increase opportunities for Cornell grads on Wall Street.

  • He noted Cornell students demonstrate more initiative and focus, making them desirable candidates.

  • Schoenberg emphasized that a pattern of success matters more than prior experience, but candidates need to be realistic about their fit with the firm.

Rae's Strategy

• Target Schools:

  • Shifted focus from top 10 schools to the next 15 in the top 25 to attract top-tier students who might be overlooked by larger firms.

• Rationale:

  • SG Cowen could be a bigger player at schools like Emory and USC, attracting better students who are also more loyal, enhancing retention rates.

• Company Presentation:

  • Addressed four key questions: who are we, what do we do, what distinguishes us, and what are the next steps, ensuring candidates have a clear understanding of the firm.

  • Highlighted advantages of a boutique firm: less bureaucracy, faster career advancement, smaller deal teams, and more client exposure, attracting candidates seeking greater responsibility.

  • Emphasized informal interaction and Q&A with students to foster engagement and transparency.

  • Some team captains offered informational interviews to help prepare students for the rigorous interview process.

• Recruiting Rewards:

  • Recruiting included on performance reviews for year-end bonuses, incentivizing bankers to actively participate in the hiring process.

On-Campus Round

• Schedules:

  • Open schedules (student sign-up) and closed schedules (SG Cowen selection) to balance accessibility and targeted outreach.

• First Rounds:

  • Interviewers identify candidates for Super Saturday based on initial assessments of skills and fit.

• Interviewer Accountability:

  • Interviewers are held responsible for candidate quality at Super Saturday, ensuring thorough and thoughtful evaluations.

• Assessment:

  • Interviewers make detailed notes on resumes and evaluation sheets to document their impressions and justifications.

• Second Round:

  • Narrowing the list to six candidates, with potential same-day interviews to select Super Saturday invitees efficiently.

• Interviewer Level:

  • Associates or senior associates conduct first-round interviews to assess basic skills.

  • Senior bankers focus on long-term potential at Super Saturday, evaluating strategic thinking and leadership qualities.

• Key Attributes:

  • Long-term success stems from loving the work, teaching, selling, client service, and competition, aligning with the demands of the industry.

• Culture Fit:

  • Assessed by asking about comfort with New York, gauging adaptability and commitment.

• HR Credibility:

  • Chip Rae's banking background enhances HR's credibility, bridging the gap between HR and banking professionals.

Super Saturday

• Format:

  • Begins Friday with dinner and cocktails, followed by Saturday interviews, creating a comprehensive and immersive experience.

• CEO Involvement:

  • Fennebresque speaks at dinner, impressing candidates with his vision and commitment, reinforcing the firm's values.

• Interviews:

  • Five half-hour sessions per candidate and interviewer, allowing for in-depth assessment and interaction.

• Decision Making:

  • Thirty candidates and bankers participate; bankers make the final decisions based on collective evaluations.

• Offers:

  • Aim to make 20 offers for 15 acceptances, complementing summer associate and analyst promotions to reach a class of 30, ensuring a balanced mix of talent.

• Orientation:

  • Successful candidates attend an orientation in April to meet banking groups and learn about the firm's operations.

• Hiring Meeting:

  • Bankers often disagree on candidates, leading to robust discussions and diverse perspectives.

  • Rae builds consensus and ensures fair consideration, balancing individual preferences with firm-wide goals.

Building a Culture through Hiring

• Firm-Oriented Behavior:

  • Encourage bankers to prioritize the firm's needs over alma mater or individual group interests, fostering a unified and collaborative environment.

• Hiring Standards:

  • Maintain standards and avoid lowering them to fill quotas, preserving the quality and integrity of the firm.

• Decision-Making Questions:

  • "If you could only take one new associate to the CEO’s office with you, which one would it be?" This probes for leadership potential and overall impact.

  • "If I can’t place her, she’s going to be yours; how do you feel about that?" This tests commitment and willingness to support the team.

• Valuing Diverse Backgrounds:

  • HR recognizes the value of people who take time to find their path, appreciating varied experiences and perspectives.

Fennebresque's Philosophy

• Attracting the Right People:

  • Seek individuals who love technology and emerging growth, aligning with the firm's focus and strategic direction.

• Motivations:

  • Discourage those driven by money or status; emphasize passion over skill, prioritizing intrinsic motivation.

• Culture's Importance:

  • Culture is critical; First Boston influenced Fennebresque's view, underscoring the importance of a cohesive and supportive work environment.

• Unified Culture:

  • Use the Ellis Island metaphor to unite bankers from diverse firms, creating a sense of shared identity and purpose.

• Support and Autonomy:

  • Provide support and decision-making power to bankers, empowering them to excel and innovate.

• Internal Focus:

  • Prioritize internal clients (employees) over external ones, fostering a culture of respect and collaboration.

Hiring Criteria

• Formalization:

  • Rae uses grid sheets to structure evaluations and voting, meeting resistance from some bankers who prefer a more flexible approach.

• Bill Buchanan:

  • Believes in self-starters over regimentation and values entrepreneurial experience and fit, prioritizing initiative and adaptability.

• Flexibility:

  • Able to stretch for personality and sparkle, creating roles for promising hires who may not fit traditional molds, fostering innovation.

• Human Element:

  • Creativity and energy are key, especially in Equity Capital Markets (ECM), driving success in dynamic market conditions.

Candidates for Hiring

Natalya Godlewska

• Background:

  • Cornell MBA, finance degree from Eastern Europe, top GPA, graduate teaching assistant, showcasing strong academic credentials.

• Skills:

  • Fluent in Russian, Polish, German, and some French, providing valuable international capabilities.

  • Worked for CommScan, gaining experience in financial data analysis.

• Strengths:

  • Strong finance background, analytical knowledge, understanding of financial markets, positive references, enhancing her credibility.

• Weaknesses:

  • Some felt she might not fit culturally and was stiff, raising concerns about team dynamics.

  • Concern about her English proficiency, potentially affecting communication.

• Support:

  • Others defended her, citing her go-getter attitude and potential client appeal, highlighting her strengths and potential.

Martin Street

• Background:

  • Wharton MBA, four years in the military, leadership experience (rescue operation in Bosnia), demonstrating exceptional leadership and resilience.

• Strengths:

  • Dynamic, confident, articulate, section president at Wharton, running club president, marathon runner, showcasing well-rounded abilities and drive.

• Concerns:

  • Limited business experience and late interest in SG Cowen, raising questions about his long-term commitment.

  • Uncertainty about offer acceptance and possible offer leveraging against other firms, posing a risk of losing a valuable candidate.

Ken Goldstein

• Background:

  • Berkeley MBA, five years at PricewaterhouseCoopers (PWC), rising to manager, demonstrating career progression and competence.

• Strengths:

  • Positive references, top 5% performance at PWC, underscoring his strong performance and capabilities.

• Concerns:

  • Married with two young children led to concerns about his willingness or ability to work long hours, raising work-life balance questions.

  • Worries about potential resentment from other associates and maturity affecting obedience, potentially disrupting team harmony.

Andy Sanchez

• Background:

  • USC MBA, UCLA economics degree, successful entrepreneur (Kaplan-style tutoring business), demonstrating entrepreneurial skills and business acumen.

• Business:

  • Served 4,000 students, $2 million in revenue, $400,000 in profits, showcasing significant business success.

• Strengths:

  • Enthusiastic, personable, well-informed, great networking skills, making him a strong candidate for client-facing roles.

• Concerns:

  • Low undergraduate GPA (2.8).

  • Business school GPA of 3.1 at a time when grade inflation at schools like USC was common.

  • Addressed concerns by citing high SAT/GMAT scores and needing to work to support himself and his brothers, providing context and mitigating concerns.

Decision Time

• Bankers struggled to decide among the final four candidates, highlighting the difficulty in balancing diverse strengths and weaknesses.

• Rae emphasized the importance of the hiring process, reinforcing its critical role in the firm's success.

Exhibits

• Exhibit 1: Sample pages from Rae's evaluation book (prior candidates), providing insights into the evaluation process.

• Exhibit 2: Associate evaluation form, detailing the criteria used for assessing candidates.