Interview: Professor Andrew Kakabadse
The Elephant Hunters
Steve Macaulay
Investment banking and high finance has come in for considerable
criticism over the last few months, so it is particularly relevant and
interesting that a book has come out on this subject, The Elephant
Hunters by Andrew Kakabadse and others.
Now Andrew, what has big game hunting got to do with investment
banking?
Andrew Kakabadse
That is how the investment bankers see themselves. The elephant
is the big game and the hunt is shooting down the elephant. And
the bigger the deal, the bigger the contract, the bigger the elephant,
the greater the reward.
So it is interesting to see that each deal is seen by investment
bankers as the hunt and each hunt is different to the other hunt and
each hunt can be on a sunny day, a rainy day, it could be conducted
by people who are experienced or inexperienced. But the essence
of the analogy is it’s difficult, it’s dangerous and you have got to be
really flexible and never stop learning.
Steve Macaulay
So that means that the kind of people that are successful in that
world need to be a particular kind of person.
Andrew Kakabadse
Yes they do. Drive is very important. Some of these individuals
would go to an airport to possibly meet a client, in the waiting
lounge, push themselves onto the individual while the client is
waiting to get another plane and then travel back, successful or
unsuccessful, to for all I know Ohio, where they were trying to meet
their potential client in Frankfurt.
So drive, tenacity, utter independence of mind and in many ways no
sense of social custom or social mores being respected. The only
thing that is respected is get the deal.
Steve Macaulay
Now the outside world sees investment bankers as being highly paid,
as being almost a tribe. Is that true?
Andrew Kakabadse
Highly paid, yes. Tribal in the sense of yes, it does attract a
particular type of person and those individuals rarely become
independent niche players, often they work for the major
investment banks. So in that sense they are tribal. But tribal in the
sense of loyalty or helping one another or working together or
maintaining the tribe, never at all. In that sense they can be
accused of being some of the most unethical people of all time
Andrew Kakabadse
because loyalty to the tribe would mean not getting the deal and
ditching your colleagues; doing things that could upset the
organisation, going halfway through a deal, resigning and then taking
that deal, even taking legal risks to another person so that you
personally can make more money. That is commonplace.
Steve Macaulay
There sounds almost something, I don’t know, psychotic, unhinged
about some investment bankers and high financers. In the book,
the way you describe them as being obsessively working 24 hours a
day, wherever they were, whatever they were doing that is all they
were thinking of – the next deal
Andrew Kakabadse
That’s true, I suspect then you apply exactly the same critique to
politicians. Always on demand, always on call, always looking after
the next opportunity or searching for the next opportunity, with
excessive energy. That is absolutely true. So if those are symptoms
of being psychotic, yes, that’s true.
Unhinged, no. These guys are distinctly hinged. Anyone who can
survive such pressure, works on preparing a document for a client
until four in the morning and then gets up at 5.30 to go to the
airport and gives a superb presentation and is asked by the client to
work until two o’clock the next morning and they are doing this for
six months – you really have to be deeply grounded and deeply
hinged to be able to survive that. Psychotic and hinged – and I
suspect that is more dangerous than psychotic and unhinged.
Steve Macaulay
One of the things that I guess used to characterise this country was
the image of the merchant banker – a very gentlemanly, leisurely
kind of approach – and contrasting that with the American
investment banking, which now seems to predominate, and people
have said what has gone wrong here is the American culture has
dominated investment banking now.
Andrew Kakabadse
You cannot lay blame on the Americans for the current economic
circumstances. The reality is what we have is shareholder value
activities being driven in mature markets. So it is an AngloAmerican phenomenon, not just an American phenomenon.
If you go back to the 1950s and 60s where there was distinct growth
in the market place, the emphasis there was on the customer, and
the emphasis there was on better marketing, better sales to the
customer and undoubtedly that was the era which laid the platform
for high quality service. But by the 80s and into the 90s where the
markets had matured, you could not generate sufficient capital to
satisfy shareholder demand by just looking at the transactional end
of the organisation. What had to happen was to look at capital
growth and make money by switching and repositioning assets. And
that is when the investment banker or the merchant banker really
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Andrew Kakabadse
came to the fore. Previously they were a niche service. They were
part of a bank, and you are quite right, they were gentlemanly, but
they were gentlemanly in America and these guys were, were almost
like a private bank dealing with high net worth individuals, trying to
get them the most favourable loan or financial deal under those
circumstances. That image changed when you were in the position
of buying and selling debt. And that is what investment banking is
all about – it’s buying and selling debt so that you can make money
on assets and have capital growth, as well as transactional income.
But you can sacrifice transactional income for capital growth.
So it is seen as an American practice, but actually it is an AngloAmerican philosophy with as much ruthlessness in London as in
Washington. And just before the collapse of the financial markets, I
would have said that the ruthlessness in London had vastly taken
over Washington because the American government had tried to
introduce controls into their financial markets and the British
government had distinctly made every attempt to not do that and
have fluidity in the market. So it was no surprise to find in 2007 and
the early half of 2008 vast amounts of capital coming from New York
into London, into the City because the ruthlessness of getting the
deal was a London based experience.
Steve Macaulay
Now this ruthlessness is a very male attribute and I noticed one of
the chapters in the book is how women are dealt with in this
environment, how women are able to survive or not thrive in this
environment.
Andrew Kakabadse
The book was written with two colleagues – one of them was my
wife and one was an ex-student, but this ex-student had been in
investment herself. And the term that we had seen both in the
United States and America, which was a politically unwelcome term,
that was used within the banking fraternity for women who were
successful in investment banking was ‘power bitch’ and these were
the power bitches. So I was a little bit uncomfortable introducing
that both as a title to a chapter, and using the term throughout that
chapter and throughout the book. The two women I was writing
the book with said ‘Don’t worry, that is just you!’ The reality is for a
woman in investment banking to be called a power bitch, it’s like for
a man to be called CEO or chairman – you have made it.
So what you have got is a ruthlessness that is feminine, with a
resilience that has got nothing to do with gender and a smart
financial brain that is numerate, that is actually just an absolute must
– again, nothing to do with gender. So to make the gender
difference, the term power bitch became the accepted term and
who gave us that term? Very successful women in investment
banking who smiled when they said that is what their identity is.
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Andrew Kakabadse
Steve Macaulay
So, just in summary then Andrew, from your insights that you have
had into this world of high finance, how do you think things are
going to change in this apparently different world that we are now
entering?
Andrew Kakabadse
I think the answer to that question really depends on the real level
of debt that exists in Britain, America and certain European countries
like Germany, but particularly Britain and America. How we are
going to deal with debt is going to be a very interesting one. If you
look at the political positioning taken by both Bush and to be honest
with Obama, and currently by Brown, the attempt is to introduce
capital into the market to get the banks lending so that we build to
the same level of transaction as we had before under shareholder
value. And the question is: Will that succeed? And my view is, I
don’t think so because the one thing that has not changed in our
economies is the economy is still mature. It is in fact more mature
than it was before.
So the boom and bust accusation that has been levelled at the
Anglo-American economies and Brown’s attempt to reduce that, it
cannot go away. What boom and bust is is, say when you are
producing tangible goods and services that people want and then
you are manufacturing money to a point which completely
outsmarts those goods and services. So in effect you are simply
buying paper. Now this again is nothing new because we had in
Europe, which escalated to Britain, in the nineteenth century instead
of buying paper people bought tulips. And tulips around 1827, one
tulip was being bought to the sum of £10,000 – can you imagine
what that meant in 1827? And I do recall in the history of this – this
is a Ponzi type of scheme generated by a Scotsman called John Law
who also became finance minister of the French government. The
last tulip that was bought was actually bought for £10,000 and the
day after all of the tulips collapsed.
Now that is the situation we are in – do you want to go and recreate
buying another set of tulips, when your first set of tulips meant
nothing? So I can’t see how any citizen is going to trust the
economy, especially when Britain and America are just printing
money – and if you read the Financial Times today and yesterday,
money is being printed quite openly. Money is not going to have
value, people will start looking at something as an alternative. So I
think the view that governments have that we can get the markets
back on track is not going to be the case. And if it’s not going to be
the case, what then will happen to investment banking is going to be
a very, very interesting question. I think we are going back to
traditional, solid retail banking based on what you can afford, what
you can do. And in many ways I don’t have a problem with that
because it will address the poverty divide that we face in both our
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Andrew Kakabadse
nations.
Steve Macaulay
Andrew, thank you very much.
Andrew Kakabadse
Thank you
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